Aug. 25 (Bloomberg) -- The federal budget deficit will total $1.6 trillion this year as revenue falls and the U.S. government spends at the fastest pace in 57 years, according to the nonpartisan Congressional Budget Office.

Next year’s deficit will total $1.4 trillion, the agency said today. The CBO also said it anticipates a “relatively slow and tentative” economic recovery because of “global economic weakness, continued strains in financial markets and households’ desire to rebuild their savings.”

The economy will grow between the fourth quarter of this year and next year by 2.8 percent and by 3.8 percent in 2011, the agency said. Unemployment will increase next year to 10.2 percent before falling to 9.1 percent in 2011, the agency said.

This year’s deficit, for the fiscal year ending Sept. 30, will amount to 43 percent of the $3.68 trillion the government will spend, the CBO said. The gap will be equal to 11.2 percent of the economy, the biggest since World War II. The shortfall is largely attributable to the financial crisis, CBO said.

“That deficit figure results from a combination of weak revenues and elevated spending associated with the economic downturn and financial turmoil,” the report said. “The deficit has been boosted by various federal policies implemented in response, including the stimulus legislation and aid for the financial, housing and automotive sectors.”

Up By $700 Billion

This year’s spending is up by $700 billion or about 24 percent, the biggest annual increase since 1952, largely because of the government’s response to the financial crisis, according to the CBO.

The takeover of mortgage financiers Fannie Mae and Freddie Mac last year has cost $291 billion while the Treasury Department’s bailout of the financial industry has added $133 billion to the deficit, the budget office said. In addition, it estimated total spending tied to the stimulus package approved in February will reach $115 billion.

At the same time, revenue is projected to fall this year by more than $400 billion or 17 percent because of the slow economy, which would be the largest drop since 1932. Corporate tax receipts will fall by 53 percent, reflecting the slow economy, while individual income taxes will shrink by 20 percent, CBO said.

White House Report

The agency and the White House budget office released biannual reports today examining the government’s budget and economic outlooks over the next 10 years. The administration pegged this year’s deficit at $1.58 trillion, next year’s at $1.5 trillion and the combined shortfalls over the next 10 years at $9.05 trillion.

The CBO said deficits between 2010 and 2019 will total $7.1 trillion. Those shortfalls, which are financed with borrowed money that’s tacked onto the national debt, would drive the debt up to 68 percent of the nation’s economy by 2019, from the current 54 percent, CBO said.

The agency said it is probably underestimating projected deficits because it is required when making forecasts to assume no laws will change. That means it assumes, for example, that former President George W. Bush’s tax cuts will expire next year as scheduled, even though Democrats said they plan to extend some of them.

Fannie, Freddie

Another difference between the two agencies is how to determine the cost of the government’s takeover of Fannie Mae and Freddie Mac. The CBO said its 2009 deficit would be about $200 billion less, about $1.4 trillion, if it used the White House’s accounting methods.

Republicans said the report shows the administration’s health-care overhaul plans are unaffordable.

“Incredibly, Washington’s spending binge for the year appears far from finished,” said Representative Paul Ryan, the top Republican on the House Budget Committee. “When Congress returns in September, it plans to add hundreds of billions” including “a takeover of Americans’ health care.”

Senate Budget Committee Chairman Kent Conrad, a North Dakota Democrat, said the estimates “reinforce the fact that the status quo on health care is not an option” because “costs continue to grow much faster than inflation -- eating up the budgets of families, businesses and even the federal government.”

To contact the reporter on this story: Brian Faler in Washington at bfaler@bloomberg.net

Last Updated: August 25, 2009 14:57 EDT