US is $407 Billion in the Hole

NEW YORK (CNNMoney.com) -- The budget deficit will jump by $246 billion to $407 billion this year, the Congressional Budget Office estimates in a report released Tuesday.

Last year, the budget deficit was $161 billion. The government's fiscal year ends Sept. 30.

The agency attributes the jump to "a substantial increase in spending and a halt in the growth of tax revenues."

That drop in revenue is driven largely by the rebates provided to tax filers from the economic stimulus law Congress passed earlier this year. The spending hike is partly due to efforts by the government "to cover the insured deposits of insolvent financial institutions," the agency said.

To date, 11 banks have been seized by the FDIC this year - not a high number historically, but higher than it's been in recent years - and that number is expected to grow in the coming months.

The CBO said it expected the deficit to exceed $400 billion - or 3% of gross domestic product - for each of the next two years if current policies remain in place. It also forecast several more months of "very slow" economic growth.

"The nation is experiencing a significant period of economic weakness," said Peter Orszag, director of the CBO.

The agency's latest estimates do not reflect the Treasury announcement this weekend that the government would temporarily takeover Fannie Mae and Freddie Mac, the two government-sponsored enterprises that form the backbone of the mortgage market.