This year's federal deficit will come in smaller than originally predicted, budget forecasters projected Monday, settling in at $331 billion, well below the $412 billion deficit record in 2004.

The surging revenues — July's tax receipts were the nation's highest in history for that month — and a steadily growing economy forced the Congressional Budget Office to lower its projection from last September, a month before the 2005 fiscal year started. At that time, the non-partisan CBO, charged with doing budget analyses for Washington lawmakers, estimated the deficit for 2005 would be $348 billion.

The CBO predicts a $314 billion deficit for the budget year starting Oct. 1.

"In turning to the bottom line, the upshot of our analysis is that the budget outlook has improved noticeably for this year, fiscal year 2005, but is largely unchanged for the decade past that -- and the economy remains in very good shape, characterized by a robust cyclical recovery and good long-term growth prospects," said CBO Director Douglas Holtz-Eakin.

House Majority Leader Tom DeLay of Texas said the new numbers reflected a positive Republican agenda.

"The falling deficit projections should come as no surprise to anyone aware of Republican fiscal policies. Lower taxes and spending discipline spur economic growth, which in turn cuts the deficit," DeLay said.

But House Budget Committee ranking Democrat John Spratt (search) of South Carolina said he's not impressed by the new numbers.

"At $331 billion, the deficit for 2005 still ranks as one of the top three," he said in a statement. "While the deficit for 2005 may be coming in below recent projections, it is far worse than the projections made in January 2001 when the Bush administration took office. In 2001, CBO projected a surplus of $433 billion for 2005, in contrast to the actual deficit, which appears to be $331 billion. That's a swing of $764 billion in the wrong direction."

Spratt and Senate Budget Committee ranking Democrat Kent Conrad (search) of North Dakota both warned Monday that with many new programs coming down the road — and an increased number of Baby Boomers starting to collect Social Security — the long-term deficit picture is bleak.

"While this year's deficit will be lower than last year's record shortfall, the improvement is likely to be short-lived. Declarations of victory over budget deficits only distract from the disturbing long-term budget outlook," Conrad said.

CBO based its estimate on the assumption that the $1.35 trillion in tax cuts pushed by President Bush in 2001 will expire as scheduled in 2010. The 10-year report said that even with an expiration in tax cuts, the deficit will remain between 2011 and 2015.

If the tax cuts are renewed, the deficit picture would worsen by $204 billion in 2011 — to perhaps $327 billion or so. By 2015, the cost of extending the 2001 and subsequent tax cuts would reach $432 billion, CBO estimated.

The CBO report also figures in current costs of operations in Iraq and Afghanistan for the 10-year period. Congress in May passed an $82 billion measure to provide more war funding, but it is not difficult to believe those numbers could go up in the next year, further inflating the deficit.

Before Bush took office, White House and congressional forecasters projected surpluses for the decade that began with the start of Bush's presidency. But with an early recession in Bush's first term, the attacks of Sept. 11 and subsequent wars in Iraq and Afghanistan, that surplus prediction disappeared.

In early 2004, Bush said his goal was to cut the deficit in half in five years. Then, the White House forecast the deficit to be $521 billion for the 2004 budget year, and the president said his goal was to see that halved, to about $260 billion by 2009.

While the $331 billion ranks among the highest deficits in dollar amounts, as a percentage of the economy, it is lower than deficits run up in the 1980s.

"The deficit we estimate to be $331 billion this year. That's about 2.7 percent of GDP, 2.7 cents on the national dollar. That's down from $412 billion last year, which was 3.6 percent of GDP, and it is also below our estimate done last March when we thought it would be in the vicinity of $390 billion," Holtz-Eakin said.

The Associated Press contributed to this report.