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Federal Budget Deficit Projected to Skyrocket in 2009

New Congressional Budget Office figures released Wednesday predict the federal budget deficit will hit $1.2 trillion in 2009. Analysts mull what the numbers mean.

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  • GWEN IFILL:

    When Barack Obama is sworn into office in two weeks, he'll also inherit another less pleasant piece of history: the largest deficit ever, $1.2 trillion. And he said today he expects things to get worse before they get better.

    BARACK OBAMA, President-elect of the United States: If we do nothing, then we will continue to see red ink as far as the eye can see. And at the same time, we have an economic situation that is dire.

    And we're going to have to jump-start this economy with my economic recovery plan, creating 3 million jobs. That's going to cost some money. And in the short term, we will actually see, potentially, additions to the deficit.

  • GWEN IFILL:

    A big part of the problem: a stubborn recession, now entering its second year.

    As consumer spending has continued to slide, the Congressional Budget Office reported today that lost tax revenue will cost the government $160 billion, while federal spending continues to climb.

    Today's deficit estimate does not include the cost of a potential stimulus package. And it includes just over half of the total cost of the $700 billion bailout package, the money set aside to rescue mortgage giants and many other financial institutions.

    The projected deficit represents about 8 percent of the economy's gross domestic product, the highest since World War II, once adjusted for inflation.

    Today, the president-elect said his recovery plan will try to curb the deficit in the long run.

  • BARACK OBAMA:

    We're also laying the groundwork for long-term economic growth, which is why a lot of the stimulative — a lot of the investments are going to be around things like energy, health care, education, things that we need to be doing anyway.

  • GWEN IFILL:

    Mr. Obama also said he would counter the new spending with a pledge to reduce unnecessary expenditures. To help make that happen, he created a new White House position and picked Nancy Killefer to head it.

    So what might these record deficits mean for the long term? We're joined by two people who watch these matters closely.

    Maya MacGuineas is president of the Committee for a Responsible Federal Budget at the New America Foundation.

    And David Walker is president and CEO of the Peter G. Peterson Foundation. He's also the former comptroller general of the United States.

    David Walker, we heard the president-elect say today that the problem is not just a deficit of dollars, but also of accountability and also of trust. He also used the word "dire." Exactly how dire is this?

    DAVID WALKER, Former Comptroller General of the United States: We have a serious problem. We're in a recession. We face some unprecedented challenges with regard to the financial services industry, the automotive industry, and a variety of others.

    Clearly, some type of stimulus program is called for. We're going to have to deal with some of the immediate crises. Deficit and debt levels are going to go up.

    But we also have to recognize the federal government is living beyond its means. It needs to get its own house in order, as well.