Mr. Kim and World

Housing collapse and financial turmoil leads to steep rise in estimated budget shortfall for '09, congressional office says.

NEW YORK (CNNMoney.com) -- The U.S. budget deficit in 2009 is projected to spike to a record $1.2 trillion, or 8.3% of gross domestic product, the Congressional Budget Office said Wednesday.

The dramatic jump compares to a $455 billion deficit in fiscal year 2008 and $161 billion in 2007. The estimate does not account for the massive spending and tax cuts proposed in President-elect Barack Obama's economic rescue plan.

The CBO's deficit forecast for fiscal year 2010 is better, but still at historically high levels. The agency projects that the annual budget shortfall will be $703 billion, or 4.9% of GDP.

The agency - which provides the official estimates of the budgetary impact of legislation and events such as wars and recessions - cites the housing market collapse and the financial market turmoil as the main culprits for the shortfall. The federal government has tried to combat the crisis by so far committing $7.2 trillion in investments and loans primarily to financial institutions.

The CBO's estimates come as Congress will begin debating a record-size recovery plan intended to stem the steep economic downturn.

Whatever package lawmakers pass will likely add significantly to the deficit. On Tuesday, Obama suggested the country could see trillion-dollar deficits potentially for years.

Obama's economic advisers have said they are working on a stimulus proposal that could cost up to $775 billion. But several noted economists have recommended lawmakers pass a stimulus package worth between $800 billion and $1.3 trillion.