The US government is pulling in less money

Some economists say, however, that the recent reduction in tax rates along with last summer's rebate cheques from the Treasury may stimulate the economy enough to moderate the size of the shortfall.

The US government derives about half of its revenue from income tax receipts from individuals, increasing the importance of limiting joblessness caused by a souring economy.

Effects of recession

Rising unemployment reduces tax rolls and increases government expenditures associated with unemployment benefits.

While some economists, including Federal Reserve Chairman Alan Greenspan, have said the nation's economy is already on the mend, most still expect the unemployment rate to increase in the coming months from February's 5.5% to at least 6%.

As part of an economic stimulus package signed by President George W Bush earlier this month, unemployment benefits have been extended by 13 weeks for those still looking for work.

Now, Mr Bush is seeking another $117bn in tax cuts over the next 10 years in the hopes of further stimulating the economy and reducing the effects of recession.

But February's increase in the budget gap threatens to curtail any further tax-cut legislation President George W Bush hopes to push through Congress.

Republicans are fearful Democrats will use this latest increase in government indebtedness as a reason to question the soundness of the administration's fiscal policies.

Mr Bush's signature on a $1.35 trillion tax cut last June has been labelled by Democrats as fiscally imprudent given the rise in government expenditures caused by the recession and the war in Afghanistan.