(FORTUNE Magazine) – There was a time when the Republicans could effectively paint the Democrats as "tax and spend" liberals, while portraying themselves as the party of fiscal restraint. This election, however, that logic will be turned on its head, as President Bush is likely to face a Democrat whose credentials as a deficit hawk are surprisingly strong.

Meanwhile, President Bush has his own deficit deficit. Since he took office, the record budget surpluses built up during the Clinton administration have turned to record red ink, and government spending has expanded at its fastest clip in 40 years. As a result, the GOP has lost most of its edge over the Democrats on the issue of fiscal responsibility. In a recent NBC News/Wall Street Journal poll, 33% of respondents said the Republicans did a better job controlling government spending--just 2% more than said Democrats were better at cost control.

Massachusetts Senator John Kerry, the front-runner for the Democratic nomination, has a long history of fighting deficits. He co-sponsored the 1985 Gramm-Rudman-Hollings Balanced Budget and Emergency Control Act, which triggered automatic spending cuts if the President and Congress failed to reach predetermined targets (but which ultimately failed to balance the budget). He also backed the Deficit Reduction Act of 1993, which helped Clinton achieve those surpluses. Now Kerry says that if he's elected he'll halve the deficit during his first term in office.

Bush, meanwhile, has been scrambling to restore his credibility with fiscal conservatives. In his State of the Union address, he matched Kerry's pledge to halve the deficit, although Bush gets there through spending cuts rather than by repealing tax breaks for those making more than $200,000 a year, as Kerry would do.

As a first step, Bush has unveiled an austere 2005 budget proposal that seeks to hold the increase in domestic discretionary spending to a mere 0.5%. But there are reasons to doubt whether the Bush budget represents a realistic solution to the country's fiscal woes. For one thing, the 2005 budget doesn't include spending for Iraq and Afghanistan. Bush's own budget director says the cost for Iraq might top $50 billion. And, in order to achieve the goal of paring the deficit to $237 billion by 2009, Bush proposes keeping total discretionary spending virtually flat for the entire four-year period, a goal that budget experts say is politically unachievable. What's more, beyond 2009, the deficit is projected to explode when most of the $936 billion in tax cuts kicks in and the first baby-boomers become eligible for early-retirement Social Security payments.

Kerry, who several polls predict would beat Bush if the general election were held today, has already begun attacking Bush's budget. While it's unlikely that many fiscal conservatives would vote for a Democrat, if they remain disgusted they might stay away from the polls entirely. "The lack of spending discipline is starting to alienate a significant portion of the fiscal-conservative base," says Stephen Bainbridge, a UCLA law professor who runs a conservative website. And if one had any doubts that budget politics have gone through the looking glass, just guess which former GOP punching bag would get the largest funding increase in 20 years under the Bush budget: the National Endowment for the Arts. --Jeremy Kahn