Taxpayers’ tab for the government’s $700 billion dollar bailout program continues to drop. New estimates from the Congressional Budget Office (CBO) put the cost of the controversial Troubled Asset Relief Program (TARP) at $66 billion.

That’s $43 billion less than the agency’s projection just five months ago, and well below the initial estimate of $350 billion.

CBO Director Douglas Elmendorf says three factors account for the reduction: further repurchases of preferred stock and sales of warrants from banks, a lower estimated cost for assistance to the automobile industry, and the Treasury’s inability to fund new TARP programs.

The last point given by Elmendorf is because of a provision included in the recently signed Dodd-Frank Wall Street Reform and Consumer Protection Act, which essentially cuts the TARP purse from $700 billion to $475 billion and prohibits the creation of any new TARP initiatives.

The agency’s projections for the bailout of Fannie Mae and Freddie Mac improved as well. Outlays for the two mortgage giants are expected to fall from $96 billion in 2009 to $41 billion this year, mostly because the GSEs are expected to recognize fewer losses on their mortgage investments and guarantees, CBO said in its report.

Although the agency expects the economy to continue to struggle, CBO estimates that the federal budget deficit for 2010 will hit $1.342 trillion – $71 billion below last year’s total and $27 billion lower than the amount that CBO projected in March 2010 when it issued its previous estimate.

The modest growth in output projected for the next two years, however, points to sluggish growth in employment during the remainder of this year and next, the agency said. The unemployment rate in CBO’s projections declines slowly, falling to 9.3 percent at the end of 2010 and 8.8 percent at the end of 2011. After next year, the agency expects the unemployment rate to decline more rapidly, reaching 5.1 percent at the end of 2014.

According to CBO’s forecast, the recovery from the economic downturn will continue at a “modest pace” over the next few years.