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Recession, bailout costs push deficit to record

The recession and massive costs for the financial bailout have pushed the federal deficit to an all-time high for the first four months of the budget year.
/ Source: The Associated Press

The recession and massive costs for the financial bailout have pushed the federal deficit to an all-time high for the first four months of the budget year.

The Treasury Department reported Wednesday that the deficit for October through January totaled $569 billion, more than six times larger than the imbalance during the year-ago period.

The deficit for January alone totaled $83.8 billion, worse than the $78 billion economists expected. The government had run a surplus of $17.8 billion in January 2008.

The huge deterioration in the government's finances reflects the recession, which has cut into tax revenues, and the large amounts of money being spent from the $700 billion financial rescue plan that Congress passed in October. About three-fourths of the deficit increase was related to spending on the bailout program.

Stimulus costs not included
With eight months left in the current budget year, the deficit already has surpassed the deficit for 2008, an imbalance of $454.8 billion that is the full-year record.

The Congressional Budget Office has forecast that the deficit for the current budget year will hit $1.2 trillion, but that estimate does not include the costs of the economic stimulus plan that President Barack Obama is pushing Congress to quickly pass to combat the recession.

House and Senate negotiators, working to reconcile differences between the two chambers, agreed on Wednesday to pare the cost of the plan to below $800 billion over two years.

Many private economists are forecasting that the budget deficit for the current year will hit $1.6 trillion.

Through the first four months of the budget year, government revenues total $773.5 billion, down 10.2 percent from the year-ago period. Much of that drop reflected weaker corporate tax revenues and falling individual tax payments.

Outlays during the first four months of the current budget year totaled $1.34 trillion, up 41.3 percent from the previous period.

Bailout plan plans
Treasury Secretary Timothy Geithner on Tuesday unveiled an overhaul of the bailout plan, outlining changes in how the Obama administration planned to spend the second $350 billion. Those efforts would harness the bailout fund to resources at the Federal Reserve and the private sector to boost lending efforts by as much as $2 trillion, according to the administration's projections.

The administration said it also planned to use $50 billion from the bailout fund to launch new government programs to combat a tidal wave of mortgage foreclosures.

Geithner and Shaun Donovan, the new secretary of the Department of Housing and Urban Development, met with housing group officials and top bank executives on Wednesday to discuss how the new programs to fight foreclosures should be structured.

John Taylor, chief executive of the National Community Reinvestment Coalition, a consumer group in Washington, said he was encouraged with the proposals the administration was considering, though the details remain vague.

Taylor said he believed the new administration would agree to using government dollars to buy up mortgages, removing them from complex mortgage-linked securities and restructuring them at more affordable levels. He said the broad-based support from government and industry officials was a "giant step forward" compared with opposition to such an approach by the Bush administration.