CBO Warns of Ballooning Deficits in Latest Fiscal Report
The Congressional Budget Office (CBO) just released its latest Budget and Economic Outlook for 2026 to 2035. Rising interest costs and unchecked entitlement spending are driving federal debt to unprecedented levels. Despite revenues exceeding their historical average, the government continues to spend far more than it takes in. This reckless borrowing has real, tangible costs for Americans, including greater inflation, slower economic growth, and higher interest rates. Congress must bring entitlement spending under control, lest the US face a slow decline culminating in a sudden, severe, and painful fiscal crisis.
Debt Surpasses WWII Record and Hits 120 Percent of GDP by 2036
Federal debt held by the public is projected to reach 101 percent of gross domestic product (GDP) in 2026, exceeding the nation’s annual economic output. By 2030, debt will surpass its all-time World War II high of 106 percent of GDP, ballooning to 120 percent by 2036 and 175 percent by 2056.
Entitlement Spending and Interest Costs Dominate Deficit Growth
In 2025, federal spending totaled $7 trillion, or 23.1 percent of GDP, exceeding the 50-year average of 21.2 percent. By 2036, spending will reach $11.4 trillion, or 24.4 percent of GDP. Autopilot mandatory spending—interest costs and mammoth programs such as Social Security and Medicare—is almost entirely responsible for this growth. By 2036, Social Security, Medicare, Medicaid, and interest costs will account for 73 percent of total federal spending, consuming nearly 100 percent of all federal revenue.
Social Security spending looks to rise from $1.6 trillion (5.2 percent of GDP) in 2025 to $2.75 trillion (5.9 percent of GDP) in 2036. Medicare will grow from $1.2 trillion (3.9 percent of GDP) to $2.4 trillion (5.2 percent of GDP) over the same period.
Net interest—the cost of servicing the national debt—will double from $970 billion in 2025 to $2.1 trillion in 2036, increasing from 3.2 to 4.6 percent of GDP. By 2036, interest payments will nearly equal all discretionary spending combined. By 2056, net interest will exceed 6.9 percent of GDP, outpacing every other major spending category.
Revenues, meanwhile, will generally remain above their 50-year average of 17.3 percent of GDP, despite the tax cuts in the One Big Beautiful Bill Act (OBBBA). Between 2025 and 2036, revenues will grow from $5.2 trillion to $8.3 trillion, hovering between 17.2 and 17.8 percent of GDP. By 2056, revenues will reach 18.8 percent of GDP—still 9.1 percentage points less than outlays.
Republicans’ Tax Bill, Tariffs, and Deportations Have Affected the Fiscal Outlook
The CBO’s cumulative deficit projection from 2026 to 2035 is $1.4 trillion higher than its January 2025 estimate. The largest policy development since the CBO’s last baseline has been Republicans’ flagship tax legislation, the OBBBA, which the CBO estimates will increase deficits by $4.7 trillion over 10 years. This is a dynamic estimate, meaning it includes both interest costs and macroeconomic effects.
The final cost could be significantly higher. The CBO assumes Congress lets certain populist provisions, including “no tax on tips,” and spending increases for defense and immigration expire on schedule. It also assumes planned spending reductions phase in as written. If Congress proves fiscally irresponsible when those deadlines arrive, the true cost could reach $5 trillion or $6 trillion.
Under the CBO’s projections, the OBBBA’s cost is partially offset by tariff policy, which reduces deficits by $3 trillion over 10 years on a dynamic basis. Importantly, the CBO assumes that tariff rates as of November 2025 are permanent. The actual deficit effect could be significantly lower if the Supreme Court strikes down part of the tariff scheme or if future administrations or Congresses reduce rates.
Separately, the CBO estimates the administration’s deportation campaign increased deficits by $500 billion over the 10-year period, in part because immigrants contribute more in revenue than they consume in benefits. Notably, the CBO’s estimate does not include the full budgetary feedback effects from the OBBBA’s $150 billion spending increase for immigration enforcement. More aggressive enforcement and deportation assumptions could push the true deficit impact past $1 trillion.
The Costs of Inaction
In its latest report, the CBO warns that the current fiscal outlook could have far-reaching and painful economic consequences. And that is before considering the possibility of additional congressional profligacy.
Rising interest costs will intensify the “crowd-out” effect, wherein federal debt competes with more productive private enterprises for available capital, reducing private investment and slowing economic growth.
Persistently high deficits also risk fiscal dominance, where government borrowing undermines the central bank’s ability to contain inflation. In the US, this could mean the Federal Reserve facing pressure to keep rates artificially low or to monetize deficits by purchasing Treasury bonds—effectively printing money to cover the government’s bills. Historically, fiscal dominance has resulted in painfully high inflation or even hyperinflation.
At any point, bondholders may lose confidence in the government’s ability to service its debt without resorting to inflation and demand higher returns to compensate for elevated risk. Higher bond yields would then increase the cost of servicing the debt, leading to more borrowing, yet higher yields, and so on. Such a “debt doom loop” could quickly escalate into a full-blown fiscal crisis.
Congress Should Start with a Fiscal Commission
Addressing the fiscal challenge really means addressing ballooning costs for old-age retirement and health care programs. Reforming these programs, however, is easier said than done. Social Security and Medicare primarily deliver benefits to older Americans who consistently vote, funded via taxes on less politically active, younger generations. For politicians, acknowledging this intergenerational transfer scheme, let alone reforming it, carries significant political risk.
The most promising path forward is a fiscal commission modeled after the Base Realignment and Closure commission. Such a commission would be composed of independent experts and tasked with a clear goal, such as stabilizing the public debt or reducing the federal deficit to 3 percent of GDP. Crucially, a well-designed commission would possess a fast-track mechanism and silent approval, meaning recommendations become law unless Congress actively disapproves. This approach could help provide legislators with the political cover needed for the difficult entitlement reforms neither party has been willing to champion alone.
The CBO’s projections reinforce a clear, recurring message: The current fiscal trajectory is unsustainable and demands action. As the CBO warns, “The size of the policy changes needed to put debt on a sustainable path will grow the longer lawmakers wait to implement those changes.” Put differently, every year that politicians delay will narrow our options, raise costs, and bring the US closer to the kind of crisis that forces reform under the worst possible conditions.