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The US budget deficit is turning a deeper shade of red.

On Friday, the Congressional Budget Office (CBO) said this year鈥檚 budget deficit is now nearly $1.7 trillion, more than $400 billion larger than it forecast two months ago. Next year鈥檚 deficit will be nearly $1.1 trillion, $430 billion more than its prior forecast. And that doesn't count President Obama鈥檚 budget plans to cut taxes and increase spending.

Although the deepening recession is partly to blame for the increase, the nonpartisan CBO says the increases are largely due to the sharp rise in spending (think fiscal stimulus package) and the higher cost of saving the financial system.

Political firestorm

The report immediately generated a firestorm of comment in Washington. Republicans said the new numbers 鈥溾�渟hould serve as a wake-up call鈥� to the administration.鈥� The President鈥檚 press secretary, Robert Gibbs, countered that the new numbers would not affect the administration's effort to cut the budget deficit in half by the end of his first term.

However, some independent budget experts say the sharply rising deficit will change the political context for Mr. Obama鈥檚 agenda.

鈥淚t will be much more difficult to reform health care, move on the energy front and invest in education,鈥� said Isabel Sawhill, senior fellow at the Brookings Institution in Washington and a former official at the Office of Management and Budget (OMB) in the Clinton administration. 鈥淚t makes his whole reinvestment agenda much more problematic, especially if there is not something done to curb entitlement spending in Social Security and Medicare.鈥�

Toward a postwar record

The changes in the deficit forecast means the deficit as a share of the US economy is much higher. Two months ago, the CBO estimated the deficit would be 8.4 percent of gross domestic product (GDP). It has now raised that estimate to 11.9 percent, the highest level since World War II.

Next year, the budget gap will be 7.9 percent of GDP, up from a prior estimate of 4.9 percent, the CBO said.

鈥淲e鈥檙e in a bad situation and it鈥檚 only going to get worse,鈥� says Roberton Williams, a senior fellow at the tax policy center at the Urban Institute in Washington.

Part of the problem is the recession. The CBO estimates that America's GDP will shrink by 1.5 percent this year but grow by 4.1 percent next year as the bulk of the government stimulus package kicks in. So this year, revenues will fall by $50 billion. But even with the recovery next year, by 2019, it estimates the gap in revenues will grow to $259 billion. 鈥淭hey are projecting things get worse on the revenue side,鈥� says Mr. Williams, who used to work at OMB.

The OMB estimates on the revenue side might even be optimistic, says Williams since it assumes that all of President Bush鈥檚 tax cuts will disappear. 鈥淭hat won鈥檛 happen,鈥� he predicts. 鈥淥bama has already said he won鈥檛 raise taxes for most taxpayers, just the top 5 percent.鈥�

Capitol Hill response

The CBO news touched off a barrage of press releases and finger-pointing. On the Republican side, House Republican leader John Boehner (R) of Ohio called the report a 鈥渨ake-up鈥� call. 鈥淲e simply cannot continue to mortgage our children and grandchildren鈥檚 future to pay for bigger and more costly government,鈥� he said in a statement Friday.

However, Rep. John Spratt (D) of South Carolina and the ranking member of the budget committee, blamed the Bush administration for leaving the economy 鈥渋n distress鈥� and already deeply in debt.

鈥淭he Bush deficits will overhang the budget for years to come,鈥� he said in a statement.

A decade of high debt

No matter who is to blame, the CBO issued yet one more sobering statistic: By 2019, the cost of servicing America's debt will be $450 billion a year. 鈥淭hat assumes a very low interest rate,鈥� says Williams. 鈥淚f our creditors lose confidence or demand a higher interest rate that number could rise rapidly.鈥�

Congress has yet to tackle the major entitlements, Social Security and Medicare. 鈥淭hey currently make up 42 percent of the budget and they are growing rapidly,鈥� Ms. Sawhill says. 鈥淚n just two to three decades, they will be absorbing all our current revenues. So it鈥檚 imperative to address the issue now.鈥�