They're back.

The 107th Congress has returned to work after the long holiday break, and waiting for them was a sobering economic assessment from the director of the Congressional Budget Office.

"I'm here to reveal the worst-kept secret in Washington, and that's probably saying something. That is that our surplus estimates of a year ago have diminished somewhat," CBO Director Dan Crippen told the House Budget Committee Wednesday.

The impact of Sept. 11, the cost of the war, a downturn in the economy, and tax cuts have taken a toll on the budget picture.

Estimates by the nonpartisan CBO suggest surpluses in the coming decade will be $1.6 trillion rather than the $5.6 trillion estimated a year ago. The $4 trillion loss represents a 71 percent drop for the years 2002-2011.

Part of the decline comes from new projections of the next two fiscal years. Last August, the CBO was predicting budget surpluses in the $170 billion range for fiscal years 2002 and 2003. Now, the CBO believes the United States will face deficits in fiscal year 2002 of around $21 billion and about $14 billion in 2003.

But by 2004, a turnaround will have occurred. The CBO believes the budget will return to a surplus of around $54 billion, and that the surplus will continue to grow throughout this decade to $2.26 trillion by the year 2012, down about $3 trillion from earlier projections.

In a congressional election year, the finger-pointing and spin began immediately. Democrats blamed the gloomier forecast on the president's tax cut.

"The president told us and the American people that we could have it all," said Senate Budget Committee Chairman Kent Conrad, D-N.D. "Unfortunately, he was wrong and he was wrong by a country mile."

Republicans charged that Democrats are laying the groundwork for a tax increase.

"If your leadership and the Democratic caucus are going to insist on tax increases, we will have a very, very long year in the budget trenches," said Sen. Pete Domenici, R-N.M.

White House spokesman Ari Fleischer took another approach, saying that the tax cut did exactly what it was supposed to do.

"The purpose of government is not to keep taxes high on the American people so the government can run gargantuan surpluses, which get spent anyway. The purpose of the government is keep taxes as low as possible while funding the government's vital priorities," he said.

"The government which had a gargantuan surplus will now have a very large surplus," he added.

In a new development, Senate Majority Leader Tom Daschle, D-S.D., is now proposing quick consideration of a stripped-down stimulus package — a bill that would be open to amendment not permitted in the prior session.

Included in the Daschle plan are mostly non-controversial items: an extension of unemployment benefits, some tax rebates for low-income Americans, bonus depreciation on capital equipment for businesses, and an as-yet-undefined package of fiscal relief for the states.

"This is an honest and earnest effort to move this process along without finger-pointing," said Daschle.

But Senate Republicans say Daschle's plan is more spending than stimulus, and are lining up behind a package developed by centrists like Sen. Olympia Snowe of Maine that found bipartisan support late last year.

"That centrist plan had the support of the president. [It] is the only plan that has bipartisan support and has passed the House of Representatives," Snowe said.

Bush plans to send Congress a $2 trillion budget for 2003 on Feb. 4. Congressional and administration sources have said it will project deficits of about $106 billion this year and $80 billion in 2003 — assuming that Bush proposals for anti-recession tax cuts and extra spending for defense and homeland security are enacted. On Wednesday, the president proposed adding $48 billion to next year's defense spending bill.

Daschle and House Minority Leader Trent Lott, R-Miss., are trying to hash out a deal to get things moving on a fast track. Anything approved by the Senate would still have to go to a conference with the House.

House Majority Leader Dick Armey, R-Texas, was careful not to express too much optimism. He said Daschle's proposal was a beginning, then added, "I wouldn't stretch the point and call it a good beginning."

The Associated Press contributed to this report.