"Obama was essentially correct when he said he inherited a budget deficit of $1.3 trillion. Though the budget deficit for 2008 was a then-record $458.6 billion, the CBO issued a projection in January 2009, just days before Obama took office that the budget deficit would reach $1.2 trillion that year, before the cost of any new stimulus plan or other legislation was taken into account."
Based on Bush's actions and economic conditions, CBO projected $1.2 trillion deficit on January 7, 2009
$1.2 trillion projection based on legislation Bush passed before Obama's inauguration. From CBO's January 2009 budget report, released on January 7, 2009: (BEFORE OBAMA GOT IN)
The ongoing turmoil in the housing and financial markets has taken a major toll on the federal budget. CBO currently projects that the deficit this year will total $1.2 trillion, or 8.3 percent of GDP. That total, however, does not include the effects of any future legislation. Enactment of an economic stimulus package, for example, would add to the 2009 deficit. In any event, as a percentage of GDP, the deficit will most likely shatter the previous post-World War II record high of 6.0 percent posted in 1983.
A drop in tax revenues and increased federal spending (much of it related to the government's actions to address the crisis in the housing and financial markets) both contribute to the robust growth in this year's deficit. Compared with receipts last year, collections from corporate income taxes are anticipated to decline by 27 percent and individual income taxes by 8 percent; in normal economic conditions, they would both grow by several percentage points. In addition, the estimated deficit includes outlays of more than $180 billion to reflect the cost of transactions of the TARP.
The projected deficit for 2009 also incorporates CBO's estimate of the cost to the federal government of the recent takeover of Fannie Mae and Freddie Mac. Because those entities were created and chartered by the government, are responsible for implementing certain government policies, and are currently under the direct control of the federal government, CBO has concluded that their operations should be reflected in the federal budget. Recognizing the cost of the takeover adds about $200 billion (in discounted present-value terms) to the deficit this year, reflecting the long-term net cost of the more than $5 trillion in credit guarantees issued and loans held by those entities at the start of the fiscal year. In addition, the cost of Fannie Mae's and Freddie Mac's new credit activity in 2009 will total $38 billion, CBO estimates.