Deficits to stay high, fiscal trajectory "not sustainable"
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U.S. budget deficits are set to remain high in the coming decade, the Congressional Budget Office said Wednesday, as a surge in tariff revenue only partly offsets lost revenue from last year's tax legislation.
Why it matters: The U.S. government is spending much more than it raises, with annual deficits on track to remain near $2 trillion, or 6% of GDP, in the years ahead — even in the absence of a recession, war or other crisis.
- The national debt, in the new CBO forecasts, is on track to rise to 120% of GDP in 2036, from about 100% now.
- That would represent a new all-time high for U.S. debt, which previously peaked at 106% just after World War II.
- That's from the "Budget and Economic Outlook" report, issued by Congress' financial scorekeeper early each year as the regular update of the outlook for U.S. fiscal policy.
By the numbers: The CBO projects a deficit of $1.9 trillion this year, up narrowly from $1.8 trillion last year. That amounts to 5.8% of this year's projected GDP, stable from last year.
- Deficits are projected to remain stable as a share of the economy for the coming years, before spiking in the early 2030s, to 6.7% of GDP in 2033, as entitlement spending for retirees soars.
What they're saying: "Our budget projections continue to indicate that the fiscal trajectory is not sustainable," CBO director Phillip L. Swagel said in a statement accompanying the report.
The intrigue: The CBO estimates that the One Big, Beautiful Bill Act, the Trump administration's signature tax law passed last year, will widen cumulative deficits by $4.7 trillion over the next decade.
- It is partly offset by a projection of $3 trillion in additional tariff revenue from President Trump's trade policy.
- The CBO also estimates that lower immigration rates will increase cumulative deficits by half a trillion over the decade.
Zoom in: The costs of servicing the national debt is on track to soar, with annual interest expense reaching $2.1 trillion, or 4.6% of the economy, in 2035, more than double current levels.
- That assumes interest rates remain relatively stable, with the projections assuming a 10-year Treasury yield of 4.3% in 2027 and subsequent years. (That rate is 4.2% as of Wednesday morning.)
Of note: The CBO sees a surge in economic growth in the first half of this year, thanks to stimulative effects of the tax law and the end of last year's government shutdown, generating 2.2% GDP growth before the economy settles into a 1.8% growth rate in subsequent years.
- The economic forecasts incorporate an improvement in productivity due to artificial intelligence, but a modest one — amounting to 0.1 percentage point of additional growth per year, increasing overall output by 1% in 2036.
