The new 10-year budget forecasts from the Congressional Budget Office, issued in mid-February, presents an outlook that’s considerably worse than the already dire scenario the agency issued a year earlier. The CBO’s bottom line: On balance, the tax reductions and spending hikes in the One Big Beautiful will increase the persistent shortfalls between revenues and outlays by amounts that swamp the extra take from tariffs, and the fleeting jump in GDP we’re witnessing right now.
The CBO issues its “The Budget and Economic Outlook” once a year. It presents detailed projections for all federal spending and revenue categories, the impact of new legislation, GDP, interest rates and sundry other economic metrics, and of course deficits and debt, over the current fiscal year and following decade. What’s so concerning about this update covering 2026 to 2036 is that it displays “primary deficits” that are even larger those posited in last year’s report. The “primary deficit” is the gap between what we collect in taxes and spend on everything from Medicare to national defense before interest costs.
Those big and widening chasms are so dangerous because they’re where the debt comes from. The U.S. must borrow 100% of the cash to cover spending-revenue gulf. That cycle keeps ramping interest expense and driving the total deficit ever higher.
In 2025, the federal government spent just over $6 billion before interest expense, and collected $5.2 trillion, forcing the Treasury to borrow the difference of $805 billion. That number gets tacked onto the debt, and so does the almost $30 billion in all new interest the one-year shortfall generates. The added “principal” plus interest spawns more interest in an ever-quickening spiral.
At the time of the report, the CBO reckoned that the Trump tariffs provide an offset, amassing $2.7 trillion over that span. The president’s policies overall were expected trigger a net increase in deficits of $1.4 trillion, or 9% over the 9 year interval. Of course, that number would now be far higher, though we’ll have to wait for a new estimate from the agency. Keep in mind that we’re starting with already high levels of primary deficits that are causing all the problems. So the Trump increases are adding extra weight that makes the climb to fiscal balance all the harder, and the possible downshift in tariff revenue would put the structural shortfalls, and resulting extra interest expense, on a faster track.
By 2035, the CBO expects the deficit to reach $2.96 trillion or 6.2% of GDP versus 5.8% today, and almost double the multi-decade, pre-pandemic average. Debt held by the public mushrooms from $30.2 trillion in 2026 to $53.1 trillion reaching 116% of GDP versus 100% today. Just 12 months ago, the call was for a 2035 deficit 10% lower than the current prediction at $2.7, and about 4% less in federal borrowings.
It’s important to note that the CBO doesn’t foresee a durable surge in economic growth. It did increase its estimate for FY 2026 significantly from last year’s 1.8% to 2.2%. But the agency then expects a downshift to 1.8% annual gains for each of the next nine years. It’s take: A slow-growing labor force due to both our rapidly aging population and tight immigration enforcement, and tariff policies that reduce purchasing power, will counter such positive forces as lower tax rates that enable higher consumer spending, and potential productivity gains from AI.
The speediest spending category by far: interest expense. Here, I’ll make an adjustment to the CBO’s baseline numbers. The agency can only make forecasts based on current law. Hence, it’s stuck positing that discretionary spending that includes defense, education and transportation doesn’t rise at all over the next decade. But the CBO also provides “alternative” numbers incorporating the budgetary effects if those outlays wax in line with GDP. So it’s realistic to include that extra spending and interest expense in a “revised” outlook, leaving all other numbers the same.
In this adjusted scenario, interest expense from 2026 to 2035 would jump from $970 billon to $2.2 trillion. That’s 115% or 8% a year. By then, carrying costs would nearly equal all discretionary spending, tower at two-times outlays for defense, and virtually tie Medicare as the second largest spending category after Social Security. The rise in interest costs would account for the entire increase in the deficit, and over half the increase in the debt.
