Rising budget deficit may add to Republican woes

By Caren Bohan and Richard Cowan

WASHINGTON (Reuters) - U.S. President George W. Bush hopes a $150 billion economic stimulus package will avert a recession in his final year in office but he also faces another problem: worsening budget deficits.

Democrats have long criticized Bush as fiscally reckless for presiding over a shift from budget surpluses in 2001 to deficits that hit a high of $413 billion in 2004.

For the past three years, however, Bush has trumpeted declines in the annual deficit.

The improvement may have come to an end for now.

A White House official said the budget that Bush will lay out on Monday will include budget deficit forecasts in the range of $400 billion in fiscal 2008 and 2009. That is equivalent to around 2.8 percent gross domestic product.

Those projections are in line with the expectations of many private analysts who say weaker corporate profits and slower growth in Americans' incomes amid a cooling economy will push the deficits higher.

"I would expect the administration's budget to reflect that the economy will grow at a slower pace than it has in the previous few years and that reduces revenues," said Brian Riedl, a budget expert at the Heritage Foundation think tank.

The budget outlook is likely to be gloomier than in recent years, whether or not the economy slips into recession or merely suffers a period of lackluster growth.