The nonpartisan Congressional Budget Office’s 10-year outlook projects that the long-term U.S. federal deficit will worsen and debt will continue to grow, primarily due to higher spending, particularly on Social Security, Medicare and debt service payments.

The fiscal outlook released Wednesday was slightly worse than the Congressional Budget Office’s analysis this time last year.

The Congressional Budget Office said the deficit in fiscal 2026, President Donald Trump’s first full year in office, will be about 5.8% of GDP, similar to fiscal 2025, when the deficit was $1.775 trillion.

But the U.S. deficit will average 6.1% of GDP over the next decade and reach 6.7% in fiscal 2036 — well above Treasury Secretary Scott Bessent’s goal of reducing the deficit to about 3% of economic output.

The latest report takes into account major developments from the past year, including the Republican tax and spending measure known as the “Beauty Act” bill, higher tariffs, and the Trump administration’s crackdown on immigration, which has included deporting millions of immigrants from the continental United States.

As a result of these changes, the deficit is expected to increase by about $100 billion in 2026, and the total deficit from 2026 to 2035 will increase by $1.4 trillion, while debt held by the public is expected to rise from 101% of GDP to 120%, exceeding historical highs.

Notably, the Congressional Budget Office said higher tariffs could boost federal revenue by $3 trillion, partially offsetting some of the increase, but it would also be accompanied by higher inflation from 2026 to 2029.

Rising debt and debt servicing are important because paying back money borrowed by investors crowds out government spending on basic needs such as roads, infrastructure and education, which are investments in future economic growth.

The CBO forecast also shows that inflation will not reach the Fed’s 2% target rate until 2030.

One major difference is that the CBO’s forecast relies on significantly lower economic growth forecasts than the Trump administration’s, with real GDP growth expected to be 2.2% in the fourth quarter of 2026, with growth slowing to an average of around 1.8% over the rest of the decade.

Trump administration officials in recent weeks have projected strong growth of 3-4% in 2026 and recently predicted that first-quarter growth could exceed 6% as investment in factories and artificial intelligence data centers increases.

CBO’s forecast assumes that the tax and spending law and tariff policy in early December will continue for ten years. The government’s fiscal year begins on October 1.

The Congressional Budget Office said that while renewed investment tax incentives and larger personal tax rebates will provide a boost in 2026, the boost will be weakened by the drag of widening fiscal deficits and reduced immigration (which slows labor force growth).

Jonathan Birx, executive vice president for economic and health policy at the Bipartisan Policy Center, said that “large deficits are unprecedented for a growing peacetime economy,” but “the good news is that policymakers still have time to correct course.”

“Emergency Warning”

Lawmakers have recently addressed rising federal debt and deficits primarily through targeted spending caps and suspensions of the debt limit, as well as through “extraordinary measures” as the U.S. approaches statutory spending limits, although these measures are often accompanied by large new spending or tax policies that maintain high deficit levels.

At the start of his second term, Trump established the new Department of Government Efficiency and set a goal to balance the budget by cutting $2 trillion in waste, fraud and abuse; however, budget analysts estimate DOGE cut $1.4 billion to $7 billion, mostly through layoffs.

Michael Peterson, CEO of the Peterson Foundation, said the Congressional Budget Office’s latest budget forecast “serves as an urgent warning to our leaders about America’s costly fiscal path.”

“This is an election year where voters understand the connection between rising debt and their personal financial well-being. Financial markets are paying attention, too. Stabilizing our debt is an important part of improving affordability and must be a central component of the 2026 campaign conversation.”