Introduction
The Congressional Budget Office’s (CBO) latest 10-year budget outlook paints a troubling picture: persistent deficits near 6% of GDP, a national debt approaching $40 trillion, and interest costs on track to become one of the largest categories of federal spending. As outlined in NTUF’s recent analysis, these projections alone should serve as a wake-up call for lawmakers to rein in unsustainable spending.
But the long-term outlook is even more alarming.
CBO’s Long-Term Budgetary Outlook for the next three decades shows that, absent meaningful reforms, the fiscal trajectory deteriorates significantly beyond the 10-year window. Debt held by the public is projected to rise from roughly 101% of GDP in 2026 to 120% by 2036—and then continue climbing to 175% by 2056. Deficits widen, interest costs compound, and major entitlement programs drift further out of balance.
In other words, what looks like a serious fiscal challenge over the next decade becomes a full-scale structural crisis over the long term. And, because these projections rely on assumptions that often understate future spending and overstate revenues, the actual outlook could be even worse.
About CBO’s Outlook
Since the passage of the Congressional Budget and Impoundment Control Act of 1974, CBO annually releases baseline projections that serve as the official benchmark for evaluating legislation for cost estimates. These estimates typically cover a 10-year window and generally assume that current law remains in place, providing lawmakers with a consistent framework for scoring the budgetary effect of policy proposals.
However, this methodology has some limitations.
Because the baseline assumes that current law will generally unfold as written, it can obscure the full scope of future deficits. In practice, lawmakers routinely extend expiring provisions, increase discretionary spending beyond inflation, or enact new policies that add to long-term costs. At the same time, some projected revenue increases, such as those driven by bracket creep, may not fully materialize if Congress intervenes.
Unlike CBO’s 10-year baseline, the Long-Term Budget Outlook is not strictly required by statute but has become an essential tool for assessing the sustainability of federal fiscal policy beyond the standard budget window. To its credit, CBO has consistently produced these long-term projections, providing lawmakers and the public with a clearer view of the nation’s fiscal trajectory.
However, the same methodological issues that tend to understate the 10-year outlook carry over into the Long-Term Budget Outlook, meaning that CBO’s already sobering projections may not fully capture the scale of the fiscal imbalance.
The Long-Term Debt Outlook
Looking beyond the 10-year window, CBO’s projections show a fiscal outlook that continues to deteriorate under current law. Debt held by the public is expected to rise from roughly 120% of GDP in 2036 to 175% by 2056—far exceeding historical norms and entering territory with few precedents among advanced economies.
Outlays will dramatically outpace revenues:
Budgetary outlays will increase from 23.3% of GDP in FY 2026 to 27.1% of GDP in 2056, well exceeding the 50-year average of 21.2% of GDP.
Revenues are expected to be 17.5% of GDP in 2026 and will increase to around 18.6% of GDP in 2036.
Net interest payments on the massive federal debt are expected to rise from 3.3% of GDP by the end of 2026 to 6.4% of GDP in 2056. That would mean that net outlays for interest payments in FY 2056 would be far greater than total federal discretionary spending that year. That would be more than triple the 50-year average of 2.1%.
Rising Entitlement Costs
The primary driver of the worsening long-term outlook is the growth of major entitlement programs, particularly Social Security and Medicare. As the population ages, birth rates decline, and life expectancy increases, a smaller share of workers is supporting a larger retiree population, which, in turn, places sustained pressure on federal finances.
Under current law, these programs are on an unsustainable path. Social Security outlays are projected to rise from 5.2% of GDP in 2026 to 5.8% of GDP in 2036, while revenues are expected to remain flat. The program’s costs have exceeded non-interest income since 2010 and its Trust Fund is expected to be depleted in 2032, at which point benefits would be reduced under existing law.
Medicare faces even steeper cost growth. Spending is expected to rise from 4% of GDP in 2026 to about 6.6% by 2047, while dedicated revenues only rise marginally from 1.5% to 1.6% of GDP. Medicare reserves are expected to be depleted as early as 2033. Without reforms, the program’s financial situation will continue to worsen, leading to a coverage gap for beneficiaries.
The longer policymakers delay addressing these structural imbalances, the more abrupt and costly the necessary adjustments will become for both beneficiaries and taxpayers.
How the Debt Could Be Even Worse Than CBO’s Stark Estimate
Even if these projections were to unfold exactly as CBO estimates, the fiscal outlook would remain unsustainable. But several key assumptions suggest the path ahead could be even more challenging. These projections rely on a set of baseline assumptions about spending, revenues, and interest rates that often diverge from how fiscal policy evolves in practice. In several key areas, those assumptions may understate the magnitude of future deficits and debt.
First, CBO assumes that discretionary spending grows roughly in line with inflation. In reality, lawmakers have frequently approved spending increases that exceed inflation, particularly during periods of economic stress or geopolitical uncertainty. If that pattern continues, future outlays and deficits will be higher than projected.
Second, projected revenue growth depends in part on “bracket creep,” as rising incomes push taxpayers into higher tax brackets over time. This assumes policymakers will allow these tax increases to take effect. Historically, however, Congress has often acted to offset such increases, thereby reducing anticipated revenue gains.
Third, CBO’s projections are based on interest rate assumptions below historical averages. Given that net interest costs are already one of the fastest-growing components of the federal budget, even modestly higher rates could significantly increase borrowing costs and accelerate debt accumulation.
Taken together, these factors suggest that CBO’s already dire projections may actually understate the scale of the fiscal calamity down the road.
The Risks from Rising Debt
Rising federal debt is not merely a long-term accounting concern; it has consequences for the broader economy and for policymakers’ ability to respond to future challenges.
As debt grows, it places downward pressure on economic growth by crowding out private investment. Increased federal borrowing can push up interest rates, making it more expensive for businesses to invest and for households to finance major purchases. Over time, this can reduce productivity, wages, and overall economic output.
Higher debt also decreases the federal government’s fiscal flexibility. As interest costs consume a larger share of the budget, fewer resources are available for priorities, leaving policymakers with fewer options to respond to a crisis.
Large deficits also cause Congress to reach the debt ceiling sooner. Each time this happens, the GAO finds that Treasury bonds have to increase interest rates, causing unnecessarily higher debt payments during congressional negotiations.
How Policy Changes Could Affect the Deficit
Policies that promote stronger economic growth can improve the long-term fiscal outlook, but they are not a substitute for addressing structural budget imbalances.
Even modest gains in productivity can have meaningful effects. A sustained increase of just half a percentage point in total factor productivity, a measure of how efficiently labor and capital are used in the economy, would raise real GDP by about 7% over the coming decade and reduce publicly held debt by about 12% of GDP.
However, growth alone cannot close the gap between projected spending and revenues, underscoring the need for broader fiscal reforms.
It is essential to rein in excessive spending, which remains the primary driver of rising deficits and debt.
Conclusion
CBO’s latest projections make clear that the federal government is on an unsustainable fiscal path. Even under baseline assumptions, deficits remain persistently high, debt continues to grow faster than the economy, and interest costs are set to consume an increasing share of the budget.
Looking beyond the 10-year window, the long-term outlook is even more troubling. Structural imbalances driven largely by rising entitlement costs and demographic trends will increasingly add pressures to federal finances, while key assumptions suggest the fiscal outlook may be worse than currently projected.
Congress has an opportunity to begin restoring fiscal sustainability by pairing pro-growth policies with efforts to rein in excessive spending and improve budget transparency. Delaying action will only make the necessary adjustments more difficult and more costly, increasing the burden on future taxpayers and beneficiaries.