As anticipated, President Bush will propose a 2003 spending plan that will include increased funding for the war, but the first deficit forecast since President Clinton's February 1997 budget proposal.

The budget plan, which will be for the fiscal year beginning Oct. 1, is the first in history to exceed $2 trillion, according to budget chief Mitch Daniels. Bush plans to push his economic priorities next week in a three-state tour.

He will visit a John Deere plant in Moline, Ill., a farm seed mill in Aurora, Mo., and the port of New Orleans to talk up his latest proposals for free trade as a way to create jobs in order to strengthen the market.

In the meantime, Daniels, director of the Office of Management and Budget, while not offering an exact dollar figure, said this year's budget shortfall will be less than 1 percent of the size of the U.S. economy. That would translate into about $100 billion or less, figuring that the economy is now about $10 trillion strong.

"The budget we propose, because it fights a war, addresses our emergency and will propose a growth package to combat recession, will be very slightly in deficit," Daniels said.

Daniels added that depending on the economy — which influences federal revenue and spending — surpluses could return by 2005, with "a fighting chance" for black ink in 2004. The prediction is brighter than one he made earlier in which he forecast deficits through 2005.

Daniels said the increased spending will be targeted to defense, homeland security and bolstering the economy. Big spending boosts will go directly to the Pentagon and the amount usually spent for domestic programs like public health, airline safety and local law enforcement will be doubled.

There will also be an economic stimulus package of tax cuts and unemployment aid similar to a GOP plan that the Senate refused to take up before the winter recess. That plan was worth about $75 billion, similar to Bush's October request.

The budget outline is the first official confirmation that the government will be operating in the red next year. Economic pundits have been predicting deficits for months following a recession that began in March last year. As early as January, the Congressional Budget Office projected surpluses of $313 billion this year and $359 billion in 2003. The $5.6 trillion surplus projected over the next 10 years has been reduced to $1.8 trillion.

As a result of the dim economic outlook, political partisans have already begun the drumbeat over who is to blame.

Democrats have blamed the $1.35 trillion, 10-year tax cut that Bush pushed through Congress last spring for the budget's crashing return to deficits, while Republicans have pointed to the recession and the costs of battling terrorism.

"This is a problem, and it's a problem that stems from gimmicks in the budget, from embracing much too enthusiastically and uncritically a blue sky forecast," said Rep. John Spratt of South Carolina, top Democrat on the House Budget Committee.

Last week, Spratt called for a budget summit much like the one President George H.W. Bush conducted in 1990, in which his compromise with Democrats caused him to break his now famous "read my lips, no new taxes" pledge. That break cost him his re-election in 1992.

Bush recently took a similar pledge, telling an audience last weekend that taxes will be raised "over his dead body."

The Associated Press contributed to this report.