Congress shocked by $1,200,000,000,000 deficit Congress gets 'sticker shock' at $1,200,000,000,000 deficit

Estimate may cool the ardor for some Obama plans

WASHINGTON — The nation's budget deficit will soar to an unprecedented $1.2 trillion this year, congressional budget analysts said Wednesday, a startling tide of red ink that could dampen enthusiasm on Capitol Hill for some of President-elect Barack Obama's most ambitious priorities.

In the first official estimate of the damage done to the nation's finances by a weakening economy and various financial sector bailouts, the Congressional Budget Office reported that the gap between government spending and revenue will exceed 8 percent of the overall economy by the end of September, a yawning chasm not seen since the end of World War II.

'Jaw-dropping'

The news drew a grim reaction from Congress, where the chairman of the Senate Budget Committee , Sen. Kent Conrad , D-N.D., called the figure "jaw-dropping." While lawmakers said they expect to dig this year's hole even deeper by approving a massive stimulus package aimed at pulling the nation out of recession, Conrad and his House counterpart, Rep. John M. Spratt Jr. , D-S.C., said they have warned Obama to limit the package to temporary measures that will not add to the deficit in future years.

The two Democratic budget leaders also cautioned Obama to find ways to pay for any other initiatives he pursues after taking office later this month, including expensive promises to expand access to health care for the uninsured, develop new sources of alternative energy and offer a bevy of new tax cuts to middle-class families.

"We should be very skeptical about any policy changes that add to the deficit and the debt that are permanent in nature," Conrad said told reporters.

Obama once again declined to say how he plans to eliminate the growing budget gap, which is projected to narrow somewhat as the economy improves but explode again as the retiring baby boom generation sends the cost of the entitlement programs — Social Security, Medicaid and Medicare — skyrocketing. Obama said he will offer "very specific outlines" for addressing short- and long-term deficits when he submits his first budget proposal to Congress next month.

"We expect that discussion around entitlements will be a part, a central part, of those plans," Obama said.

So far, however, Conrad said Obama's team has been cool to requests to establish a bipartisan task force that would re-examine the entitlement programs, as well as the nation's tax system.

Meanwhile, Spratt said Obama's team is pressing for a new tax cut for working families in the stimulus package that would be made permanent in Obama's first budget.

Spratt said he got "sticker shock" when he opened Wednesday's CBO report.

9% jobless rate predicted

The picture it paints is bleak: The CBO predicts that the recession that began in December 2007 will extend well into this year, driving unemployment to more than 9 percent by early 2010. (That rate is currently 6.7 percent.) Plummeting home prices, which touched off the panic in financial markets last year, are likely to fall another 14 percent by 2010 and foreclosure rates are likely to remain high. As a result, federal tax collections are expected to drop by $166 billion this year.

Government spending, meanwhile, is expected to skyrocket to nearly 25 percent of the economy. Two of the biggest expenses will be the estimated $240 billion to incorporate mortgage-finance giants Fannie Mae and Freddie Mac into the federal budget and the rescue of troubled financial institutions, expected to cost $700 billion.

The CBO estimates that most of the money will be recovered when those assets of the latter are sold and so is charging only $180 billion against the deficit.