The deficit projection of $1.56tn (£975bn) for the fiscal year to September 30, 2011, is about 10.6 per cent of the US GDP, beating last year's record of $1.41tn (£875bn). It is far higher than even what the White House forecast merely a week ago.
The President's Republican opponents were quick to seize the opportunity, accusing him of being a 'tax-and-spend President' and spending without any thought for the future.
Obama has blamed the unprecedented government debt on his predecessor, arguing that the country's deficit was passed on to him by George W Bush, who cut taxes and waged two wars. He said he had no option but to spend his way out of the recession and continue to do whatever he can to create jobs.
In a televised address from the White House, Obama said the government won't be able to bring down the deficit overnight because economic recovery is still taking hold. But he admitted that "we simply cannot continue to spend as if deficits don't have consequences."
The president's budget plans now go for Congressional approval. He has pledged to more than halve the budget deficit to 4 per cent (about $706bn) by the time his term ends in 2014.