Feb. 6 (Bloomberg) -- Under President George W. Bush's new budget, the federal deficit would decline gradually until 2010 and then start rising again, as the full impact of his requested permanent tax cuts and other proposals is felt.

Bush's budget for the year beginning Oct. 1, presented to Congress today, projects a decrease in the deficit to $183 billion for the year beginning Oct. 1, 2009, from this year's record $423 billion.

If Congress makes Bush's 2001 and 2003 tax cuts permanent, most of the impact won't be felt until after 2011, long after the president has left office. Some of the tax reductions are due to expire at the end of 2008 and the rest in 2010.

While keeping the cuts in place would cost the government $178.6 billion through 2011, the loss of revenue over the following five years, from 2012 through 2016, would be $1.2 trillion.

Likewise, the loss of revenue that would result from expanding health savings accounts, which allow Americans to put away money tax-free to pay medical expenses, would total $29 billion during the five-year period from 2007 to 2011. Over the following five years, the cost of the program would double to $58 billion.

Medicare Cuts

Bush's proposal also assumes that a subsequent president and Congress will be willing to accept bigger chunks of the cuts in the growth of Medicare that he envisions. While the health- care program for the elderly would be cut by $36 billion over the next five years, the budget sees his successor pushing through an $11 billion cut in the program in 2011 alone.

The president's budget projections also make no allowance after 2007 for the loss of revenue from any adjustments in the alternative minimum tax, which is under fire because it is hitting more middle-income taxpayers. The tax was originally designed to keep the wealthiest Americans from escaping taxes.

Bush's budget does project an increase in the deficit to $205 billion for fiscal 2011 after it bottoms out in fiscal 2010. It doesn't make any estimates beyond 2011. Bush inherited a surplus of $128 billion when he took office in 2001, according to the Congressional Budget Office.

To contact the reporter on this story: Jonathan D. Salant in Washington at jsalant@bloomberg.net.

Last Updated: February 6, 2006 12:37 EST