Great news: The "twin deficits" are shrinking!

Then again, "shrinking" is a relative term -- and we're talking about dips from mind-boggling highs.

The better-known of the twins, the federal budget deficit, was projected by the Congressional Budget Office on Tuesday to reach $422 billion in the current fiscal year, which ends Sept. 30. That is $56 billion less than the fiscal gap that the nonpartisan budget office predicted in March.

The U.S. trade deficit, meanwhile, narrowed in July, to $50.1 billion -- down substantially from the $55 billion posted in June, according to a Commerce Department report issued Friday.

For people who worry that ever-rising deficits are heaping debt upon future generations, eroding long-term living standards and even risking a financial crisis, those figures may sound heartening. And the news about the budget deficit, in particular, drew huzzahs from President Bush's reelection campaign. The improvement for the fiscal year, after all, was attributable largely to the strengthening economy, which has boosted tax receipts -- precisely the supply-side magic the president's supporters predicted. So Vice President Cheney, campaigning in Iowa, said the new estimate was "a direct result of economic growth that came about as a result of the tax changes that the president put through and the Congress supported."

But at the risk of being labeled "economic girlie men" by California Gov. Arnold Schwarzenegger, the administration's critics -- and even some people with ties to the White House -- viewed the figures rather differently.

A $422 billion budget deficit, they pointed out, would be $46 billion more than the previous year's record gap between federal spending and tax revenue. Even more important than the short-term figure, they contended, were the budget office's long-term projections, which showed that if Bush succeeds in persuading Congress to make his tax cuts permanent, the deficit will increase to about $500 billion in 2009. Worse yet are the projections of how the deficit will balloon in later years once the baby-boom generation begins to draw Social Security and Medicare benefits. According to the budget office, absent any changes in budget policy, the federal debt will soar from $4.3 trillion this year to nearly $6.8 trillion in 2014.

"This is a fiscal situation in which we cannot rely on economic growth to cause deficits to disappear," said budget office director Douglas J. Holtz-Eakin, a former Bush aide.

As for the trade numbers, the $50.1 billion deficit for July was the second biggest monthly gap ever. Based on the data through July, the current year's trade deficit is running at a $581 billion annual rate, well above last year's record $496.5 billion.