WASHINGTON - The budget deficit for March showed a dramatic decline as the Obama administration formally entered a lower ultimate cost for the government's $700 billion financial bailout program.

The Treasury Department said the deficit for March totaled $65.4 billion, compared to a $191.6 billion imbalance a year ago. However, $115 billion of that improvement occurred because the administration lowered its estimate of the total costs for the Troubled Asset Relief Program.

The lower bailout estimate had already been included in the administration's budget which it sent to Congress in February but it had not been included until March in the Treasury Department's monthly accounting of outlays and receipts.

The deficit through the first six months of this budget year totals $716.99 billion, a drop of 8.2 percent from the same period a year ago. However, the administration is projecting that the deficit for all of 2010 will hit an all-time high of $1.56 trillion, up from last year's record of $1.4 trillion.

The projected full-year deficit is being driven upward by the severe impact of the worst recession since the 1930s, which has cut sharply into government tax revenues while driving up spending.

Spending is higher because of the costs of the bailout to help financial firms, auto companies and homeowners facing foreclosure. The spending has also soared because of the economic stimulus program passed in February 2009 with an original price tag of $787 billion plus the added demands on such government programs as unemployment benefits and food stamps.

For the first six months of the current budget year, government receipts total $953.9 billion, down 3.6 percent from the same period a year ago.

However, in an encouraging sign that the economy is starting to turn around, tax receipts in March were higher than a year ago, marking the second consecutive month that tax receipts were up from a year ago. That followed 21 straight months in which receipts were lower than the same period the previous year.

Government outlays totaled $1.67 trillion through the first six months of the current budget year, 5.7 percent lower than the same period a year ago. That decline reflected in part the lower estimate for the cost of the financial bailout.

With the economy still weak, the interest rates that the government must pay to finance the flood of red ink have remained low. But economists are worried that could change quickly if investors start to worry about the government's ability to restrain future deficits. China is the largest foreign holder of U.S. Treasury securities.

The administration has projected that the deficit will remain above $1 trillion next year as well, giving the country three straight years of $1 trillion-plus deficits. Under the administration's budget projections, the deficit will never drop below $706 billion for any year in the next decade.

The administration says the huge deficits have been necessary to prevent an even deeper recession. But Republicans have attacked the stimulus spending for failing to do enough to boost employment. The jobless rate in March remained at 9.7 percent for a third straight month although payrolls grew by 162,000.

The budget President Barack Obama sent to Congress in February projects that the deficits over the next decade will total $8.53 trillion but the Congressional Budget Official is forecasting that under Obama's spending plans the deficits during this period will total an even higher $9.8 trillion.

Federal Reserve Chairman Ben Bernanke last week warned that the nation will have to make painful choices to get control of the deficits.

"To avoid large and unsustainable deficits, the nation will ultimately have to choose among higher taxes, modifications of entitlement programs such as Social Security and Medicare, less spending on everything else from education to defense, or some combination of the above," he said in a speech to business executives in Dallas.

Obama, by executive order, has created an 18-member fiscal reform commission that has been charged with coming up with a plan to shrink the deficit to 3 percent of the economy within five years. The plan is scheduled to be unveiled in December.