The White House is expected project that the federal budget deficit will peak this year at $521 billion, surpassing congressional estimates and shattering previous records.
The White House sees improvement after that, and officials said President George W. Bush would set an election-year goal of halving the deficit over the next five years.
At $521 billion, the fiscal 2004 deficit would easily top the $374 billion shortfall posted in fiscal 2003.
It is also significantly higher than this week's Congressional Budget Office deficit projection of $477 billion for fiscal 2004.
Fiscal conservatives warned Mr Bush's newly enacted Medicare prescription drug plan would only add to the red ink.
In the fiscal 2005 budget he will send to Congress on Monday, Mr Bush will estimate the 10-year price tag of the Medicare bill at $539 billion - far more than initial projections of $400 billion.
Faced with a backlash from conservatives in his own party, Mr Bush will propose limiting growth in spending outside defence and homeland security at about 0.5 per cent - far less than the rate of inflation.