Introduction
In light of recent economic trends and the most recent Congressional Budget Office projections (CBO 2026a), we offer perspectives on the medium- and long-term fiscal outlook, updating our previous work, most recently in Auerbach and Gale (2025a, 2025b).
The basic story has two components. First, federal non-interest spending and revenues are out of balance, generating sizable primary deficits that are persistent relative to historical patterns, especially given that the projections generally involve near-full-employment assumptions. Second, net interest payments rise steadily and substantially relative to GDP due to high pre-existing debt, persistent primary deficits, and gradually increasing interest rates. Together, these two patterns generate rising unified deficits and public debt as a share of GDP.
Under CBO’s current-law (CL) projections for the next 10 years, primary deficits will average 2.1% of gross domestic product (GDP). Net interest payments will rise from 3.2% of GDP in 2025 (tied with 1991 as the all-time high) to 4.6% in 2036, as the average nominal interest rate on government debt rises to exceed the nominal economic growth rate by 2031. The unified deficit will approach 6.7% of GDP within 10 years. Even the cyclically adjusted deficit will exceed 6% of GDP. Debt will rise from 99% of GDP at the end of 2025 to 120% by 2036, well beyond the previous all-time high.
Over the following two decades, the projected trends are even less auspicious. Sizable primary deficits persist indefinitely. The gap between the average nominal interest rate on government debt and the nominal economic growth rate continues to widen, setting off the possibility of explosive debt dynamics. By 2056, relative to GDP, annual net interest payments reach 6.9%, the unified deficit reaches 9.1%, and the public debt stands at 175%. All these figures would be all-time highs (except for deficits during World War II, the 2008 financial crisis, and in the first two years of the COVID-19 pandemic) and would continue to grow after 2056.
Budget outcomes would be even worse under “current-policy” (CP) projections that incorporate more realistic policy choices than those required of CBO in its baseline calculations. Making temporary tax provisions—such as those in the 2025 One Big Beautiful Bill Act (OBBBA)—permanent and making plausible assumptions about future discretionary spending (to maintain government services) would drive the debt-to-GDP ratio to 211% by 2056.
Fiscal gap calculations indicate the magnitude of the changes required to meet a future fiscal target. For example, starting from the CL baseline, we estimate that to keep the debt-to-GDP ratio at its current level (99%) in 2056 would require a combination of permanent spending cuts or tax increases equaling 2.33% of GDP if implemented starting in 2027. This represents about $707 billion in today’s economy or about 27% of current income tax revenues, 14% of all current tax revenues, 12% of current non-interest spending, or 20% of current non-interest spending other than Social Security and Medicare. Delaying the implementation of the actions—or using a CP scenario as the baseline—would raise the size of the intervention needed.
Compared to last year’s estimates, CBO now projects higher debt and deficits over the next 10 years. At the same time, CBO also projects that GDP will be higher, enough so that the projected debt-to-GDP ratio for 2035 has fallen slightly, even incorporating the effects of 2025 legislation. Nevertheless, the long-term fiscal outlook has deteriorated, with the 2055 debt-to-GDP ratio increasing from 156% last year to about 172% in the current CL projection. Policy changes account for much of this change. The direct deficit-increasing effects of the OBBBA exceeded the projected deficit-reducing impacts of newly imposed tariffs, even before the Supreme Court ruled that some of the tariffs were unconstitutional (Gale et al. 2026; Marimow 2026). In addition, higher average interest rates on government debt, due in part to the policy changes, raise debt further.
Long-term budget projections, of course, are sensitive to parameter choices in general and to interest rate projections in particular. But it would take quite favorable variation in baseline parameters to put fiscal policy on a sustainable course in the absence of major policy changes.
Section II describes the construction of different budget baselines. Section III summarizes how projections for GDP and interest rates have changed over the past year. Section IV examines the 10- and 30-year CL budget projections as of February 2026 and compares them to the March 2025 CL baseline. Section V estimates the effects of CP adjustments. Section VI discusses cyclically adjusted deficits and sensitivity analysis with respect to tariff revenue and other factors. Section VII calculates fiscal gaps under various scenarios. Section VIII concludes with a discussion of the role of policymaker choices.
Related Content
Authors
The Brookings Institution is committed to quality, independence, and impact.
We are supported by a diverse array of funders. In line with our values and policies, each Brookings publication represents the sole views of its author(s).
