The White House on Monday raised its forecast for this year's U.S. budget deficit by $89 billion due to the recession, millions of new unemployment claims and corporate bailouts.

The new estimate predicted a deficit of $1.84 trillion, or 12.9 percent of gross domestic product, for the fiscal year ending September 30. It updated the White House's February forecast of a $1.75 trillion deficit, or 12.3 percent of GDP.

The report may add to the political challenges facing President Barack Obama as he seeks to push through a new healthcare plan and other domestic initiatives.

White House officials said the gloomier picture reflected weaker tax receipts as the economy declined and higher costs for social safety-net programs such as unemployment insurance. Spending on government rescues for the financial and automobile industries also played a part.

While the Democratic-led Congress has approved the broad outline of Obama's proposed FY 2010 budget that includes initiatives on healthcare, education and other items, many lawmakers are wary about the deficit outlook.

Republicans contend Obama's agenda would sharply increase the size of government and add to a mountain of debt.

It's clear that there is much more that we can do to protect our children and grandchildren from the unprecedented trillions in additional debt proposed by the administration, Senate Republican leader Mitch McConnell said in a statement.

The White House countered that Obama inherited huge deficits from his Republican predecessor President George W. Bush. The higher deficits are driven in large part by the economic crisis inherited by this administration, White House budget director Peter Orszag said on his blog.

The report from the White House Office of Management and Budget also revised the deficit higher for fiscal year 2010, to $1.26 trillion, or 8.5 percent of GDP, $87 billion more than February's $1.17 trillion projection.

PROPOSED BORROWING INCREASE FOR FDIC

The fresh budget documents also included an Obama proposal to increase the Federal Deposit Insurance Corp's borrowing authority to $100 billion from $30 billion.

The increase is intended to help the agency protect bank depositors amid expectations that more financial institutions may fail this year. It would also aim to ease strains on banks by lowering the cost they pay to the government for deposit insurance.

After taking office in January, Obama released a bare-bones version of his budget in February with a spending plan for 2010 carrying a price tag of $3.55 trillion. The White House has now revised up the size of the spending plan to $3.59 trillion.

The U.S. economy shrank at a steep 6.1 percent rate in the first three months of this year.

The new White House figures bring the deficit estimates closer in line with the non-partisan Congressional Budget Office, which has forecast a $1.85 trillion deficit this year and $1.38 trillion in fiscal 2010.

To allay worries about the deficit and fend off Republican attempts to paint him as a big spender, Obama in the past week has rolled out a series of announcements aimed at showing he is working to stem the red ink.

Last week, he said he could wring $17 billion in savings from his budget by cutting waste in areas from weapons systems and education to the cleanup of abandoned mines.

But the cuts in 121 programs amounted to less than one-half of 1 percent of the total budget for 2010 and even the slim list of reductions is likely to face resistance in Congress.

A Senate Republican aide noted Monday's budget reassessment added more than five times the amount to the deficit than the administration proposed saving with the $17 billion in cuts.

Obama also unveiled a plan to toughen tax policies for multinational companies that invest abroad and to close loopholes on overseas tax shelters. Many businesses strongly oppose the proposed changes for multinational firms.

Obama on Monday highlighted more savings at a White House forum on making the U.S. healthcare system more efficient.

Trade groups such as the American Medical Association and the American Hospital Association and labor unions pledged to cut growth of health costs by 1.5 percentage points annually.

If that were achieved you would virtually eliminate the long-term fiscal gap, budget director Orszag said told Reuters television.

(Additional reporting by John Poirier; Editing by Eric Beech and Bill Trott)

Healthcare George W. Bush Barack obama