Federal deficit projections are steadily worsening, even as President Bush prepares to send Congress a $2.2 trillion spending blueprint for 2004 that calls for more tax cuts while restraining funding for a broad spectrum of federal agencies.

The Congressional Budget Office planned to release its updated deficit forecast on Wednesday. Analysts inside and outside government said the nonpartisan agency's deficit figures will be tens of billions worse than they were in August, when CBO projected shortfalls of $145 billion this year and $111 billion in 2004.

Though gloomier than five months ago, the budget office figures almost certainly understate the shortfalls. Since CBO by statute must only count taxes and spending enacted into law, its estimates omit the costs of Bush's proposed $674 billion, 10-year economic growth package, possible war with Iraq and billions in spending increases that Congress is likely to approve.

Some private economists have projected that this year's deficit will hit or surpass $300 billion. The worst ever was the $290 billion in red ink the government ran in 1992, when Bush's father was president.

In August, the CBO forecast a cumulative surplus of $1 trillion over the decade beginning in 2003. That number also was expected to be smaller in Wednesday's update.

Underlining the rapid deterioration in the government's books, the CBO just two years ago projected a $5 trillion surplus for the next decade. At that time, the new Bush administration envisioned $5.6 trillion in surpluses — a forecast it pared down to an $827 billion surplus this past August.

The new numbers are sure to fuel this year's fiscal fight between Bush and congressional Democrats, which will intensify when Bush sends lawmakers his 2004 budget on Monday.

In an interview Tuesday with The Associated Press, White House budget director Mitchell Daniels said Bush's budget would boost homeland security spending beyond $40 billion. Those programs — including defense programs the administration considers aimed at countering domestic terror — would grow by 7 percent to 8 percent over Bush's 2003 plans, Daniels said.

The Defense Department, the one part of the budget already enacted into law, would grow by 4 percent to 5 percent, Daniels said. That would mean a roughly $16 billion boost over the $365 billion provided for 2003.

That would leave a 3 percent to 4 percent increase for the rest of government, he said. But much of that money would go to increases in education for disabled and low-income students and for veterans health care, leaving little for hundreds of other programs.

The president and congressional Republicans blame the continued string of deficits on the limp economy and repercussions of the Sept. 11, 2001, terrorist attacks.

Democrats point to the $1.35 trillion, 10-year tax cut Bush and predominantly GOP lawmakers pushed through Congress in 2001. They say Bush's economic plan — all but $4 billion of which are tax cuts — would only make the deficit worse.

The red ink has become a sensitive issue for the Bush administration because of the abrupt turnabout in the government's financial picture. After four decades of annual deficits, there were four consecutive annual surpluses in the final years of the Clinton administration that ended with a $159 billion shortfall last year under Bush.

The deficits Bush will forecast in the budget he releases on Monday will be even worse than CBO's because the White House forecast will factor in the price tag of his proposed economic package and some additional spending. It will not include the costs of a possible war with Iraq.

Daniels said Bush would forecast a 2003 deficit of less than 3 percent the size of the U.S. economy. That translates to a shortfall of about $300 billion or less, a deficit that he said would gradually decline in coming years.

Daniels, who provided no other specifics about deficits, said Bush could erase the red ink quickly "if all the nation cared about was getting back to balance in the budget." Instead, he said, Bush's budget was focused on battling terrorism, strengthening the economy, shoring up Medicare and other priorities.

"There is a conscious choice here, but we should bear in mind if the No. 1 priority was balancing the budget, it would not be a great trick to do," simply by limiting growth in spending, he said in a telephone interview.

Congress, gridlocked during last fall's midterm elections, still is working on spending bills for the budget year that began Oct. 1.

By voice vote Tuesday, the House approved a bill that keeps agencies open through Feb. 7 while budget negotiations continue. Without the bill, spending authority will expire Jan. 31, and quick Senate passage is expected.