CBO Releases Negative Fiscal Outlook for 2026-2036

Action: The Congressional Budget Office (CBO) has released its latest budget outlook for the Federal government for 2026-2036, with an increasingly negative fiscal trajectory over the next decade.¹

Trusted Insights for What’s Ahead^®

• CBO projects the Federal budget deficit to be $1.9 trillion (5.8% of GDP) in 2026, rising to $3.1 trillion (6.7% of GDP) in 2036. These projected deficits are much higher than the historical average of 3.8% of GDP over the past 50 years.
• Debt held by the public is projected to increase from 101% of GDP in 2026 to 120% of GDP in 2036, eclipsing the previous record of 106% of GDP right after World War II.
• Spending on Social Security, Medicare, and servicing the national debt continues to be the major driver of Federal outlays. Between 2026 and 2036, CBO projects Social Security outlays to rise from 5.2% to 5.9% of GDP, Medicare outlays from 4% to 5.2% of GDP, and net interest outlays from 3.3% to 4.6% of GDP. An aging population, rising health care costs, higher interest rates, and accumulating debt are the reasons behind these major changes.
• The enactment of Public Law No. 119-21 (H.R.1, 2025), also known as the One Big Beautiful Bill Act or OBBBA, and the Administration’s tariff policies are the major drivers of changes in CBO’s revenue estimates over the next decade. Individual income tax receipts are projected to rise from 8.6% of GDP in 2026 to 9.1% of GDP in 2036 because of the scheduled expiration of temporary OBBBA provisions and real bracket creep (i.e., the individual income tax system is not indexed for real growth and is only partially indexed for inflation, with a lag, resulting in more income pushed to higher tax brackets when income grows faster than prices). The collection of customs duties is projected to rise from 0.6% of GDP in 2025 to 1.3% of GDP in 2026 before declining to 0.9% of GDP in 2036 due to a reduction in imports in response to the Administration’s tariffs.
• Compared to its January 2025 estimates, CBO now projects the cumulative deficit between 2026 and 2035 to be $1.4 trillion higher, largely influenced by increased deficits associated with the tax cuts in the OBBBA ($4.7 trillion) and the Administration’s immigration actions ($0.5 trillion, from a decrease in the number of people paying taxes and a reduction in the size of the population) offset by a deficit reduction of $3 trillion tied to higher tariffs. (CBO estimates on current law and must assume that the tariffs continue.)
• CBO also estimates higher interest rates over the next decade compared to last year’s projections.² CBO projects the short-term interest rate to settle at 3.1% by the end of the projection period compared to 3.0% in last year’s estimates. The 10-year Treasury rate for 2026 is now projected to be 4.1% (compared to 3.9% in last year’s projections), rising to 4.4% by 2031 and settling there for the remainder of the projection period.
• What this means for business: CBO’s debt projections, particularly for interest rates, portend a challenging financing environment for businesses over the next decade. The Federal government’s higher net interest spending to service the national debt will crowd out private investment in the economy, and businesses will have to adjust to higher costs to finance debt as a result. CED has released a Solutions Brief and infographic describing how a bipartisan fiscal commission in Congress to address the national debt can break the political impasse surrounding this issue and restore Congressional powers that have recently eroded.