WASHINGTON – The U.S. Federal budget outlook has deteriorated, with the Congressional Budget Office (CBO) projecting worsening deficits and rising debt over the next decade. The CBO’s February 2026 report, released on Wednesday , attributes the increased fiscal strain to a combination of increased spending – particularly on Social Security and Medicare – and the impact of recent legislative and economic changes.
The CBO forecasts a deficit of 5.8 percent of Gross Domestic Product (GDP) for fiscal year 2026, roughly in line with the 2025 deficit of $1.775 trillion. However, the agency projects that the deficit-to-GDP ratio will average 6.1 percent over the next ten years, climbing to 6.7 percent in 2036 – a level significantly higher than the 3.8 percent historical average and well above Treasury Secretary Scott Bessent’s stated goal of reducing it to around 3 percent.
The latest projections reflect a $1.4 trillion increase in projected deficits over the 2026-2035 period compared to the CBO’s January 2025 baseline. This increase is attributed to the net effect of legislative changes, economic shifts, and technical adjustments. Debt held by the public is now expected to rise from 99 percent of GDP at the end of fiscal year 2025 to 101 percent by the end of 2026, reaching a record 108 percent by 2030 and continuing to climb to 120 percent of GDP by 2036.
Several key developments underpin the revised outlook. The “One Big Beautiful Bill Act,” a recent Republican tax and spending measure, contributes to the increased deficit. Higher tariffs are also a factor, although the CBO notes that these tariffs are projected to raise federal revenue by $3 trillion, partially offsetting other increases. However, this revenue gain is accompanied by higher inflation from 2026 to 2029.
The administration’s crackdown on immigration, including the deportation of millions of immigrants, is also cited as a contributing factor, slowing the growth of the labor force. Revived investment tax incentives and larger individual tax refunds offer a short-term boost in 2026, but This represents tempered by the broader fiscal drag.
Rising debt levels and associated debt service costs pose a significant concern, as they can crowd out government spending on essential areas like infrastructure, education, and other investments crucial for long-term economic growth. The CBO also projects that inflation will not reach the Federal Reserve’s 2 percent target rate until 2030.
A notable divergence exists between the CBO’s economic forecasts and those of the Trump administration. The CBO projects real GDP growth of 2.2 percent for 2026, slowing to an average of 1.8 percent for the remainder of the decade. This contrasts sharply with the administration’s recent projections of robust growth in the 3-4 percent range, with some predictions exceeding 6 percent in the first quarter of 2026, driven by investments in factories and artificial intelligence data centers.
The CBO’s projections are based on the assumption that current tax and spending laws, as well as tariff policies in place as of early December, will remain unchanged for the next decade. The government’s fiscal year begins on October 1.
Jonathan Burks, executive vice president of economic and health policy at the Bipartisan Policy Center, noted that “large deficits are unprecedented for a growing, peacetime economy,” but added a note of optimism, stating, “the good news is there is still time for policymakers to correct course.”
The report serves as an “urgent warning” according to Michael Peterson, CEO of the Peterson Foundation, who emphasized the connection between rising debt and the economic conditions experienced by voters. He also highlighted the scrutiny from financial markets, stating that stabilizing the debt is “an essential part of improving affordability” and should be a central theme in the 2026 campaign conversation.
Lawmakers have previously addressed rising federal debt through targeted spending caps, debt limit suspensions, and the use of “extraordinary measures” when approaching the statutory spending limit. However, these measures have often been accompanied by new spending or tax policies that have largely maintained high deficit levels.
President Trump’s administration established a “Department of Government Efficiency” with the goal of balancing the budget by cutting $2 trillion in waste, fraud, and abuse. However, analysts estimate that the department’s actual cuts ranged from $1.4 billion to $7 billion, primarily through workforce reductions.
