WASHINGTON (AP) – The White House projected Friday that this year’s deficit will hit a record $445 billion, further fueling a campaign-season dispute over President Bush’s handling of the economy.

The figure easily surpassed last year’s $375 billion, making it the largest-ever in dollar terms. That gave ammunition to Democrats who say Bush’s tax cuts and failure to prevent a loss of jobs during his term have worsened the outlook for the budget and the economy.

But in a political plus for Republicans, the new projection was also an improvement over forecasters’ expectations of earlier this year. In February, the administration projected a $521 billion shortfall for 2004, while the nonpartisan Congressional Budget Office estimated a month earlier that the deficit would be $477 billion.

The White House was attributing the improvement to the collection of $82 billion more in revenue than had been anticipated, which generally reflects more vigorous economic activity. That was partly offset by $6 billion more in spending than was expected, mostly for Medicaid and Medicare.

“We are meeting our national priorities and by showing spending restraint elsewhere in the budget we are on track to meet the president’s commitment to cutting deficits in half” over the next five years, White House spokesman Scott McClellan told reporters aboard Air Force One as Bush flew to campaign stops in the Midwest.

Democrats argue the report underscores the decline of the government’s fiscal health under Bush, who has seen three straight years of worsening annual shortfalls following four consecutive surpluses under President Clinton.

“Anyway you slice it, a deficit exceeding $400 billion this year alone is bad news for the country,” said Thomas Kahn, Democratic staff director for the House Budget Committee. “Republicans’ failed budget policies have converted record surpluses into the biggest deficits in American history.”

The White House also lowered its deficit projections for each of the next five years.

It now expects the 2005 shortfall to be $331 billion, easing to $229 billion by 2009. That was $33 billion less than it projected in February for 2005, and $8 billion less than it envisioned then for 2009.

The report was released a day after the Democratic National Convention and the same day Congress began hearings on the Sept. 11 commission’s final report. The deficit projection was due July 15, a date often ignored by administrations of both parties, but White House officials said it simply had not been ready.

The White House report also boosted its estimate of Medicare spending by $67 billion over the next five years. Administration officials attributed the increase to added expenditures under last year’s bill expanding Medicare coverage and to changes in long-range technical estimates about the program.

Medicare, the government’s health insurance program for the elderly and disabled, spends about $300 billion a year. Extra Medicare spending could further heighten concerns about the program’s solvency, already in jeopardy over the next two decades with the impending retirement of the huge baby-boom generation.

Medicare’s anticipated rapid growth in coming years is expected to be a major engine keeping the budget in the red.

The federal budget year runs through Sept. 30. That means the final deficit figure will be available shortly before the Nov. 2 election, further shining a spotlight on the issue.

In an era of war, terrorism fears and an economy that is still shaky in some parts of the country, there is scant evidence the public is worried about the budget’s travails.

Democrats hope to use the shortfalls as a symbol of how tax cuts Bush has pushed through Congress have caused red ink to spread, soaking up money for education, domestic security and other priorities.

Republicans have blamed the invasion of Iraq and recession for the fiscal problems. They also say the deficits are manageable because they are only about 4 percent the size of the U.S. economy – well below the 6 percent reached under President Reagan.

The congressional forecasters have estimated annual federal deficits will stay near $300 billion until 2011. But that assumes Bush’s tax cuts expire after 2010 – which many legislators say is politically unlikely.

AP-ES-07-30-04 1254EDT

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