The US Congressional Budget Office (CBO) appeared set today to predict a federal budget deficit of close to $500 billion in 2004.
That would be a record shortfall that could pose problems for President George W. Bush as he seeks re-election next year.
The nonpartisan CBO presents its bi-annual budget and economic outlook, which is expected to be the latest blow in a relentless drumbeat of fiscal bad news that has put the Mr Bush administration on the political defensive.
The White House last month forecast that federal budget deficits would balloon to $455 billion this year and $475 billion in 2004 - far above the previous record of $290 billion reached in 1992 - even without factoring in the mounting cost of the US occupation of Iraq.
The CBO has said it expects a smaller $401 billion deficit this fiscal year, which ends on September 30th, partly as it assumes Iraq funds are being spent more slowly.
But that also means its 2004 deficit estimate will be higher - and could "easily" top $500 billion once the cost of a likely new emergency defense spending request is taken into account, said Mr Bill Hoagland, budget adviser to US Senate Majority Leader Mr Bill Frist, a Tennessee Republican.
Democrats blame Bush's big tax cuts for the steep slide in the US fiscal position since the government enjoyed a record surplus on $236 billion in 2000 and say they fear the shortfalls are becoming so entrenched they will persist long after the economy recovers from its current weakness.
The panel's Democratic staff predict a 2004 deficit of $472 billion, rising to $495 billion if estimated future Iraq war costs are included. They also note the CBO analysis will omit other major costs, like the $400 billion Mr Bush wants to spend to overhaul Medicare, which would further boost the deficit.