The Congressional Budget Office on Wednesday warned yet again that the U.S. is on an unsustainable fiscal path, jacking up its estimate of deficits for the coming decade by $1.4 trillion thanks in part to President Donald Trump's 2025 tax law and immigration policies.
Trump's signature fiscal package from last July, which extended his 2017 tax cuts and implemented a number of new breaks, is estimated to increase deficits by $4.7 trillion over the next 10 years, the Congressional Budget Office said in a report. The cost of the administration's immigration enforcement actions are expected to add $500 billion, it also said.
Those losses are projected to outweigh Trump's dramatic import duties, which have taken the average effective tariff rate above 13%, according to an estimate from Bloomberg Economics — the highest since at least the 1940s. The CBO projects the increased revenue from tariffs will reduce deficits by $3 trillion.
That $3 trillion assumes that U.S. trade policies in place as of Nov. 20 remain on the books through the coming decade, the CBO said. Yet tariff rates likely face significant changes in coming months and years. The Supreme Court is set to rule on whether the president exceeded his authority in imposing many of his levies, while future administrations — along with Trump himself — may shift tack.
Net outlays on interest are also expected to drive deficits higher, surging from $1 trillion in 2026 to $2.1 trillion in 2036, due to the large amount of debt and higher average interest rates.
Should the CBO's forecasts pan out, it would rebuff the hopes of Treasury Secretary Scott Bessent, who has continued to target getting the deficit down toward 3% by the end of President Donald Trump's term. For 2026, the CBO boosted its deficit projection to 5.8% from the 5.5% it had projected prior to Trump taking office. For 2028, the predicted gap is 6%.
Historic Highs
And by 2036, the government will be running a deficit equivalent to 6.7% of gross domestic product. That's well above the 3.8% average over the past 50 years, the CBO said. Total deficits are projected to equal or exceed 5.6% in every year from 2026 to 2036, setting a record as deficits have not been that large for more than five consecutive years since at least 1930, when the data was first reported, the CBO report shows.
The report also shows that the agency doesn't see the administration's recipe of tax reductions, tariff hikes and deregulation as sufficient to generate a steeper trajectory for economic growth.
The CBO expects U.S. economic growth to be stronger in 2026, at 2.2% compared with the 1.8% it had projected in January last year. It then sees a moderation to 1.8% in 2027 and 2028 and remaining at that rate on average through 2036. That's well short of the 3% growth rate Bessent is targeting.
With growth higher for this year, the CBO extended out its forecast for when the debt ratio hits a record high. Last year, the agency forecast the U.S. hitting a 107% debt-to-GDP ratio by 2029, exceeding the 106% record set in 1946, just after the end of World War II. Now the agency doesn't expect the ratio to hit a new high until a year later in 2030.
Powell's Caution
Much of the rise in the debt is thanks to elements outside of regular annual federal appropriations for discretionary spending categories such as defense, housing or homeland security. Interest on the debt has surged in recent years, while outlays for the giant entitlement programs Social Security, Medicare and Medicaid have also climbed.
As high as it is, the current level of debt shouldn't pose a problem, Federal Reserve Chair Jerome Powell said last month. The challenge, however, is that the government is on "an unsustainable path."
"We're running a very large deficit at essentially full employment, and so the fiscal picture needs to be addressed — and it's not really being addressed," Powell said in a press briefing.
Despite the unprecedented deficit-to-GDP ratio projections, CBO does not anticipate a significant change in the government's cost of borrowing. The agency projects 10-year Treasury yields will rise from an average of 4.1% this year to 4.4% on average in 2031 through 2036.
The relatively benign outlook is due to the expectation that the aging U.S. population and slower immigration will put downward pressure on long-term interest rates, partially offsetting the impacts of rising debt, CBO Director Phillip Swagel told reporters during a press briefing Wednesday.
The agency's projection reflects continued investor confidence in the U.S., but Swagel did acknowledge the potential for higher long-term rates if independence of the Fed comes into question amid Trump's push for the central bank to lower interest rates.
"We expect the Federal Reserve to remain independent, to fulfill its mission, to meet its target," Swagel said. "All of that is built into our forecasts, into our projections. But we're cognizant of the potential if things go in the other direction, the potential for higher interest rates, and then the impact on the economy and the budget."
As for inflation, the CBO does see it getting back to the Fed's 2% target in time, averaging that pace over the half-decade to 2036. But it's seen remaining stubbornly high at 2.7% for this year, ticking down to 2.3% in 2027.
"Inflation from 2026 to 2029 is now expected to be higher than the agency projected last year, mostly because of the effects of higher tariffs," the CBO said.
Unemployment is expected to rise to 4.6% on average in 2026. The release was prepared in December, prior to Wednesday's latest jobs report.
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