The Congressional Budget Office (search) projected Tuesday that this election-year's federal deficit (search) will hit a record $422 billion, a shortfall that would be smaller than analysts predicted earlier this year.

The estimate by Congress' nonpartisan budget experts immediately provided political fodder for both parties in the final two-month stretch of the presidential and congressional campaigns.

Focusing on a $55 billion improvement since the budget office last estimated this year's shortfall in March, Republicans hailed the figures as good news.

The new congressional estimate is "a sign of the economic growth that is a result of President Bush's (search) leadership on tax relief," said Tim Adams, policy director for the Bush campaign. He said Kerry's budget plans, which include expanding health care programs, mean "higher taxes on all Americans or a budget deficit that is completely out of control."

"This report underscores that our policies are working to create a stronger economy, more jobs and a lower deficit," said House Budget Chairman Jim Nussle, R-Iowa.

Democrats emphasized that despite the improvement, the $422 billion would be the biggest deficit ever in dollars, surpassing last year's record $375 billion.

From the campaign trail, Democratic presidential candidate Sen. John Kerry (search) of Massachusetts weighed in.

"Only George W. Bush could celebrate over a record budget deficit of $422 billion, a loss of 1.6 million jobs, and Medicare premiums that are up by a record 17 percent," Kerry said.

"There is no way to portray a record deficit as good news," said Rep. John Spratt of South Carolina, top Democrat on the House Budget Committee. "From any perspective, today's deficit numbers are a cause for alarm and a call to action."

Tuesday's figures don't include costly steps that many expect lawmakers to take that would swell the red ink further. These include making tax cuts that Bush has won permanent, and easing the gradually growing impact on middle-class taxpayers of the alternative minimum tax, which was initially aimed at the wealthy.

The CBO report said next year's deficit would shrink to $348 billion, which would be the third largest ever in dollar terms. That would be $15 billion less than it projected last March, but $17 billion higher than the White House estimated in July.

While the congressional analysts improved their short-term budget projections, their long-term forecast has worsened since last March.

Over the 10 years ending in 2014, the analysts now envision deficits totaling nearly $2.3 trillion -- almost $300 billion worse than they projected in March.

The increase is largely due to an assumption that extra spending enacted this year for Iraq (search), Afghanistan (search) and overall defense needs will be continued annually over the next decade. The validity of that assumption is likely to be grounds for more partisan battling.

Though the budget office sees a healthy economy over the next two years, the report warned that the approaching retirement of the baby boom generation means that serious problems loom with growing pressure on Social Security (search), Medicare and Medicaid.

When adjusted to erase the effects of inflation, the projected $422 billion deficit projected for 2004 would exceed the value of every annual shortfall since World War II.

Tuesday's CBO estimate should prove fairly accurate because the federal budget year, which runs through Sept. 30, has less than one month to go. But it does not include the $2 billion in aid for repairing hurricane damage in Florida that President Bush requested Monday.

The government is expected to spend about $2.3 trillion this year, which means it will be borrowing about one of every five dollars it spends.

The $422 billion projection for 2004 echoed a preliminary estimate the budget office made last month. It was an improvement from its $477 billion forecast in January, a revision the office attributed mostly to stronger than anticipated revenue collections.

Just last month, the White House forecast a $445 billion deficit for this year, though administration officials acknowledged the figure could be too high because of overestimates for spending.

After a fleeting four-year return to annual budget surpluses under President Clinton, deficits have returned with a vengeance under Bush.

Republicans who spent the 1980s and 1990s railing against budget shortfalls have argued that fighting wars in Iraq and Afghanistan, battling terrorism and righting the economy are higher priorities.

They also argue that today's deficits are no reason for panic because as a percentage of the overall economy, they are smaller than the largest shortfalls under President Reagan. Many economists consider that ratio the most significant measure of the harm deficits can cause.

Democrats say the shortfalls are forcing policy-makers to restrain spending for schools, domestic security and other priorities, while driving up the government's borrowing costs. And they say deficits have worsened because of the price tag of the tax cuts that Bush and his GOP allies have pushed through Congress.