The Congressional Budget Office's latest estimate is $10 billion below CBO predictions issued in August and well below a July White House prediction of $296 billion.

The improving deficit picture Bush predicted a $423 billion deficit in his February budget has been driven by better-than-expected tax receipts, especially from corporate profits, CBO said.

The 2005 deficit registered $318 billion; the record $413 billion deficit was posted in 2004.

At $250 billion, it would be the lowest since the $158 billion figure in 2002, the first deficit following four years of surpluses.

The CBO estimate continues a positive trend on the deficit after a grim deficit performance during President Bush's first term, and comes despite soaring war costs and $50 billion in emergency spending for hurricane relief.

House Budget Committee Chairman Jim Nussle, R-Iowa, credited the improving deficit numbers to "a responsible budget blueprint and pro-growth policies," even as Democrats pointed out that at $250 billion, the deficit is still one of the largest in history.

"Though today's estimates for 2006 are not as pessimistic as some earlier estimates, it is clear that the budget remains on the wrong track," said top budget panel Democrat John Spratt Jr. of South Carolina. "The Congressional Budget Office and even the Bush administration are estimating that deficits will be even larger next year."

White House budget chief Rob Portman said the economy's current performance, with the unemployment dropping to 4.6 percent in September and the Dow Jones industrial average hitting record highs this week, provided more evidence that the president's economic policies are working.

"This economy is strong and growing," Portman told reporters at a briefing. "This is a very strong indication that the president's tax relief program is working."

But when measured against the size of the economy, which is the comparison economists think is most important, the deficit picture looks even better.

At 1.9 percent of gross domestic product, the 2006 deficit registers far below those seen in the 1980s and early 1990s. The modern record of 6 percent of GDP came in 1983 and deficits greater than 4 percent in 1991 and 1992 drove Congress to embark on a 1993 deficit-cutting drive.

Still, the long-term deficit picture remains bleak due to the looming retirement of the Baby Boom generation, which threatens to swamp Social Security and the Medicare health care program for the elderly.