NEW YORK (CNN/Money) - Give the folks at the Congressional Budget Office a round of applause.

The CBO this week could have simply tallied up the budget deficit according to established rules and regulations, and let it go at that. Instead the non-partisan budget watchdog went out of its way to point out that the real deficit picture may be worse than "by-the-book" projections indicate.

Start with next year's forecast. It comes in at $368 billion if calculated the usual way. That would be less than 2004's deficit of $412 billion.

But the CBO quickly pointed out that "a significant amount of spending" on the wars in Iraq and Afghanistan were omitted from what it calls the "baseline projection." And this came against the backdrop of reports that the White House was getting ready to ask for $80 billion more for Iraq.

That the cost of war should be included seems pretty obvious -- so obvious that the White House also felt the need to do so.

The White House within hours of the CBO release put out a 2005 budget deficit estimate of $427 billion.

At the same time, the White House insists that it can meet its goal of halving the budget deficit by 2009.

But the 10-year projection from the CBO shows how hard that is going to be to pull off.

The CBO notes that its baseline forecast for the budget deficit back in September was $861 billion. Now it has raised even the baseline projection to $1.3 trillion.

And it included a lot of extras that could add to that figure. (See Table 1 - 3 on page 8 of the report.)

For example, the CBO looked at the cost of making the tax cuts permanent, which President Bush has repeatedly pushed for, and of reforming the alternative minimum tax.

Those costs, of course, do not have to be figured into the current deficit forecast, because Congress has not acted yet. And if Bush does not get his way, the tax cuts will eventually "sunset," or expire. But the CBO evidently thinks the public should be aware of what their costs would be.

The cost of making the tax permanents would add about $1.3 trillion dollar to the 10-year deficit forecast. Reforming the AMT could add nearly $400 billion.

Very easily, the CBO figures, the 10-year deficit could be over $2 trillion. And that doesn't include any costs for reforming Social Security.

Speaking of Social Security, and the much bigger and more costly issue of financing Medicare and Medicaid, the CBO says that it will claim an ever-increasing share of the budget deficit as the population ages. In 10 years, spending on these programs is expected to grow by about 25 percent relative to the size of the economy -- from 8.4 percent of GDP in 2004 to 10.4 percent of GDP in 2015.

If the population over age 65 continues to rise, the amount of money the government must spend for these programs will get bigger, too.

"Thus, over the long term the increasing resources needed for such programs will exert pressure on the federal budget that will make current fiscal policy unsustainable," the CBO warns.

In other words we can't pay for a costly war, make tax cuts permanent, keep spending on other programs and finance the nation's elderly all at once -- or something's going to hit the fan. And you can't say the CBO didn't try to warn you.

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-- Kathleen Hays is economics correspondent for CNN and contributes to Lou Dobbs Tonight.