The U.S. budget deficit is projected to edge up to $1.853 trillion in fiscal 2026, the Congressional Budget Office said Wednesday, indicating that President Donald Trump’s economic policies are, overall, worsening the fiscal outlook amid sluggish growth.
The CBO said the deficit for fiscal 2026 – Trump’s first full fiscal year in office – will be about 5.8% of GDP, about where it was in fiscal 2025, when the deficit was $1.775 trillion.
But the U.S. deficit-to-GDP ratio will average 6.1% over the next decade, reaching 6.7% in fiscal 2036 – far above U.S. Treasury Secretary Scott Bessent’s goal to shrink it to around 3% of economic output.
The Congressional Budget Office frequently underestimates economic growth, White House spokesman Kush Desai said, noting 2025 GDP growth outpaced its projection.
A key gap lies in forecasts: the CBO sees 2026 real GDP growth at 2.2%, averaging about 1.8% for the rest of the decade, while Trump officials project 3–4% growth, with first-quarter estimates as high as 6% driven by factory and AI investments.
CBO projections assume current tax, spending and tariff policies remain for a decade. It added that while tax incentives and refunds may boost 2026 growth, larger deficits and reduced immigration could dampen labor force expansion.
Nominal Boost From AI
The non-partisan Congressional Budget Office (CBO) expects only modest economic gains from AI, projecting minimal GDP growth and little support for lower interest rates, undercutting Trump administration arguments for rate cuts. It sees 10-year Treasury yields around 4.3% in 2027 and only one small Fed rate cut this year.
The fiscal 2026 deficit is projected to be about $100 billion higher than earlier estimates, with a $1.4 trillion larger cumulative deficit through 2035. Trump’s tax-cut extension and spending bill could add $4.7 trillion to deficits, plus $500 billion from reduced immigration, partly offset by roughly $3 trillion in tariff revenues.
Far Higher Interest Costs
The forecasts show some deficit reduction from discretionary spending cuts, with a fiscal 2026 $16 billion reduction compared to CBO’s forecast in this category from January 2025, rising to about $139 billion by fiscal 2035.
Rising Medicare and Social Security costs tied to an aging population will further drive deficits. Public debt is forecast to hit $56.2 trillion (120% of GDP) by 2036, with the debt-to-GDP ratio surpassing its post-WWII peak by 2030.
(With inputs from Reuters)
