CBO, the non-partisan budget analysis agency for Congress, said that during October through December, the first quarter of fiscal 2008, government spending rose by 9 per cent compared with the first quarter of fiscal 2007, while revenues grew by about 6 per cent.

'Corporate receipts for the quarter fell by about US$5 billion, or 5 per cent, compared with collections in the same quarter of fiscal year 2007,' CBO said. It added: 'The decline in receipts probably reflects a drop in corporate profits that has occurred over the past year.'

Congressional Democrats were quick to claim the first quarter deficit picture was further evidence of a weakening economy.

'The economy grows weaker, as evidenced by today's report of an increasing deficit and last week's report of a spike in the unemployment rate to 5 per cent,' House Budget Committee Chairman John Spratt, a South Carolina Democrat, said.

Later this month, CBO is scheduled to provide a more detailed picture of the US budget and economy in an annual report to Congress.

President George W. Bush, while arguing the economy is fundamentally sound, has opened the door to stimulating the economy to head off a slowdown or minimise its impact. Last week he said decisions were not yet made and probably would not be before his Jan 28 State of the Union address to a joint session of Congress.

But Democrats, in and outside of Congress, already are floating the idea of legislation that would stimulate the economy through temporary, targeted tax cuts to the middle class, expanded unemployment benefits and more food aid for the poor.

Besides slowing corporate revenues, CBO also noted significantly higher government costs for health care for the poor and a whopping 17 per cent increase in government debt payments.

Government budget surpluses recorded in the late 1990s rapidly turned into record-setting deficits as President Bush's 2001 and 2003 tax cuts took hold during a period of growing spending by Washington.

Over the last couple of years, those deficits have declined, leading President Bush to conclude that the budget would be balanced by 2012.

But Senate Budget Committee Chairman Kent Conrad, a North Dakota Democrat, said that 'with a weakening economy, we can expect further deterioration in the deficit.' -- REUTERS