CBO says the deficit is heading higher — even after tariffs — and interest costs are about to swallow everything

WASHINGTON — The U.S. budget deficit is projected to climb again in fiscal 2026, with the nonpartisan Congressional Budget Office warning that President Donald Trump’s mix of tax cuts, immigration restrictions and tariff policy leaves the nation running historically large deficits despite a job market expected to stay relatively strong.

The CBO forecast puts the fiscal 2026 deficit at $1.853 trillion, up from $1.775 trillion in fiscal 2025, which would keep the shortfall around 5.8% of gross domestic product in Trump’s first full fiscal year in office. The headline figure is big. The underlying warning is bigger: CBO expects the deficit-to-GDP ratio to average 6.1% over the next decade, reaching 6.7% by fiscal 2036 — levels the agency described as unusual outside wartime or severe recessions.

CBO Director Phillip Swagel said the sustained deficits are historically unusual because unemployment is projected to remain below 5% over the 10-year window — meaning the government is running “emergency” sized deficits during what is supposed to be a normal economy. The forecast also sets up a direct fight with the White House over growth. CBO projects 2026 real GDP growth at 2.2%, fading to about 1.8% on average for the rest of the decade, far below the Trump administration’s public expectations of 3% to 4% growth. A White House spokesman pushed back, saying CBO often underestimates growth and arguing Trump’s policies will shrink the deficit-to-GDP ratio rather than expand it.

The forecast also addresses the administration’s favorite buzzword: AI. CBO projected only a modest boost to productivity from artificial intelligence — roughly 10 basis points per year — which limits how much AI can “save” the numbers through faster growth. The agency also expects 10-year Treasury rates to stay roughly where they are or slightly higher, with a projection of about 4.3% in 2027, complicating any political plan that depends on sharply cheaper borrowing.

Then there’s the part that always gets people angry: interest. CBO said the growth in net interest costs is poised to dwarf many of the discretionary cuts lawmakers fight over, with net interest costs projected to more than double to $2 trillion by fiscal 2035 from $970 billion in fiscal 2025. On top of that, rising Medicare and Social Security costs tied to an aging population remain major deficit drivers.

CBO also sketched out how Trump’s signature legislative agenda impacts the ledger. The agency said Trump’s “One Big Beautiful Bill” — which extended 2017 tax cuts and cut social program spending — would add $4.7 trillion to deficits over a decade, while reduced immigration would add another $500 billion. Added tariff revenue would reduce deficits by about $3 trillion when economic effects and lower debt payments are included, CBO said.

The long-run debt picture is the kind of chart that turns into a political weapon. CBO projected total public debt rising to $56.152 trillion — about 120% of GDP — by 2036, up from $30.172 trillion and 99% of GDP in fiscal 2025. CBO said the debt-to-GDP ratio would exceed its 1946 peak by fiscal 2030.