The White House has cut its forecast for this year's budget deficit by $127 billion as tax receipts in the first half of the year grew at a much faster pace than expected.
The deficit is expected to be $296 billion in the 2006 fiscal year, according to White House spokesman Tony Snow. That is sharply lower than the $423 billion the Bush administration projected when it unveiled its budget plan in February.
A surge in tax receipts from corporations and high-income households seen in recent months has helped to offset a big rise in spending, fuelled by the costs of the Iraq war and the rebuilding following Hurricane Katrina.
Private analysts and experts at the Congressional Budget Office also have said they expect a deficit of around $300 billion for the 2006 fiscal year that ends in September.
While the Bush administration credits its 2001 and 2003 tax cuts for spurring economic growth and lifting tax revenues, Democrats say the broader fiscal record under President Bush is bleak.
The United States had surpluses when Mr Bush came into office but is now running deficits in the hundreds of billions, Democrats point out.