Budget Deficit May Swell to $450 Billion

WASHINGTON —  The Bush administration is expected to acknowledge today that the federal budget deficit could top $450 billion this fiscal year -- 50% more than it estimated only last winter and, in dollar terms, the largest deficit on record.

Congressional sources said the White House’s Office of Management and Budget is likely to report that a combination of war, tax cuts and a stumbling economy will push the deficit to between $410 billion and $450 billion.

The sources said the estimates may not include some of the unexpectedly high costs of policing post-war Iraq. As a result, the deficit could end up being still higher.

The new deficit estimate easily tops the previous record of $290 billion set in 1992, but when measured as a share of the economy remains below the largest deficits of the Reagan years.

The projections are a further reminder of the abrupt about-face in Washington’s fiscal fortunes since 2000, when the government ran a surplus of nearly $240 billion.

Much of the deterioration since the White House’s February estimate of a $300-billion deficit for this fiscal year is traceable to the latest of three administration-inspired tax cuts and a nearly $80-billion emergency spending bill to pay for the war in Iraq and the immediate post-war period.

But the onrush of red ink is also due to a persistently sluggish economy that has sharply reduced federal tax revenues. The revenues have fallen for three straight years, a record unmatched since the Great Depression.

Congressional Republicans sought Monday to portray the expected new deficit figures as a worst-case scenario, saying they included estimates for administration proposals such as a 10-year, $400-billion Medicare prescription drug benefit that have yet to become law.

But some congressional staffers acknowledged that the new estimates could well prove too low because of the cost of reconstructing Iraq.

Defense Secretary Donald H. Rumsfeld told a congressional committee last week that the cost of maintaining U.S. forces in Iraq was running about $3.9 billion a month, or nearly twice what the Pentagon had estimated in April.

Congressional sources said that the OMB is expected to say the deficit will shrink slightly next fiscal year, which begins Oct. 1, although it is likely to remain stuck above $400 billion.

Independent analysts have estimated that the deficit will grow next fiscal year, perhaps to as much as a half-trillion dollars.

The Concord Coalition, an independent fiscal watchdog group, said Monday that the last six months of federal budget-making were “the most fiscally irresponsible in recent memory” as the White House and Congress engaged in “a schizophrenic pursuit of small government tax policies and big government spending initiatives.... “