The Congressional Budget Office warned Wednesday about the nation’s fiscal trajectory as it raised its projection for the 2026 deficit to $1.9 trillion and said that the cumulative deficit from 2026 through 2035 would be $1.4 trillion higher than forecast in January 2025, thanks largely to a combination of policies enacted by President Trump and Republicans.
Relative to the size of the economy, the deficit is projected to grow from 5.8% to 6.7%, with cumulative deficits totaling $24.4 trillion from 2027 through 2036. The large annual deficits are projected to raise federal debt held by the public from 101% of GDP this year to 120% in 2036, topping the previous high, 106%, by the end of 2030.
The Trump effect: In a new set of projections for the budget and economy over the coming decade, CBO said that the “One Big Beautiful Bill” domestic policy package signed into law by Trump last July will increase deficits by $4.7 trillion, propelling annual deficits to reach $3.1 trillion by 2036. The new law extended the party’s 2017 tax cuts and added new breaks on top of those.
CBO said that the Trump administration’s immigration policies would add another $500 billion to the deficit. On the other side of the ledger, Trump’s higher tariffs are projected to reduce deficits by $3 trillion, though that is based on the somewhat shaky assumption that the tariff rates in place as of November 20, 2025, will continue unchanged. These higher tariffs are expected to also keep inflation slightly higher than it had been in last year’s forecast.
“Revenues are roughly stable in relation to the size of the economy, rising from 17.5 percent of GDP in 2026 to 17.8 percent in 2036,” CBO Director Phill Swagel wrote in a statement about the latest report. “Outlays increase from 23.3 percent of GDP to 24.4 percent of GDP over the next decade as spending on Social Security, Medicare, and interest payments grows faster than output.”
Rising interest costs: The budget scorekeeper also noted that rising net interest costs will drive much of the growth in deficits, climbing from $1 trillion this year (3.3% of GDP) to $2.1 trillion in 2036 (4.6% of GDP). The deficit excluding those costs — known as the primary deficit — is expected to be 2.6% of GDP this year and 2.1% by 2036.
A short-lived boost: The CBO report also projects the Republican tax law to help juice growth somewhat in the near term, from an estimated 1.9% rise in inflation-adjusted GDP for 2025 to a 2.2% growth rate for 2026, four-tenths of a percent higher than it projected in January last year. But growth is then projected to moderate to 1.8% for 2027 and 2028. Interest rates on 10-year Treasury bills are expected to rise from an average of 4.1% this year to 4.3% for the next couple of years and then 4.4% from 2031 through 2036.
“We expect the Federal Reserve to remain independent, to fulfill its mission, to meet its target,” Swagel told reporters at a briefing Wednesday. “All of that is built into our forecasts, into our projections. But we’re cognizant of the potential if things go in the other direction, the potential for higher interest rates, and then the impact on the economy and the budget.”
January deficit down from last year: A separate monthly report from the Treasury Department said that the deficit for January was $95 billion, down 26% (or $34 billion) from last year. Receipts for the month totaled $560 billion, up 9% year over year, while outlays rose 2% ($13 billion) to $655 billion.
The deficit for the first four months of the fiscal year that started in October was $697 billion, down $143 billion, or 17%, from the prior year.
The bottom line: The fiscal outlook has worsened, in large part due to Trump’s policies. “There are no surprises here or bright spots of encouraging news: Our nation’s deficits, debt, interest payments and trust funds are all in terrible shape,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, which advocates for deficit reduction.