CBO projects soaring federal deficits and record debt, sounding fiscal alarm

The Congressional Budget Office (CBO) released a pair of reports painting a stark picture of the nation’s fiscal health, projecting that federal debt will reach unprecedented levels over the next decade.

The agency attributes the unsustainable trajectory to the 2025 reconciliation act, which permanently extended tax cuts for the wealthy, and a chaotic tariff policy that has backfired, blowing a $200 billion hole in this year’s budget.

In its latest budget and economic outlook, the CBO projects that the federal budget deficit for fiscal year 2026 will hit $2.1 trillion, up from a previous estimate of $1.9 trillion.

The deficit is expected to reach $3.1 trillion, or 6.7% of gross domestic product (GDP), by 2036. These sustained large deficits are historically unusual, given that the unemployment rate is projected to remain below 5%.

The gross national debt of the United States officially reached $40 trillion for the first time on August 18, 2026, and the portion sold to outside investors, foreign governments, and the Federal Reserve was about $32.3 trillion, according to the U.S. Treasury.

Federal debt held by the public—excluding money the government owes to its own trust funds, like Social Security and military retirement funds—is projected to rise from 101% of GDP in 2026 to 120% in 2036, surpassing the previous record of 106% set just after World War II.

Tax Cuts for Billionaires Drive Deficit

The primary driver of this fiscal deterioration is the 2025 reconciliation act, also known as the “One Big Beautiful Bill Act.”

The CBO estimates that the law will increase deficits by $4.7 trillion over the 2026-2035 period. The bulk of this increase stems from permanently extending the 2017 tax cuts, which overwhelmingly benefit high-income earners and corporations. While the law includes some spending cuts to programs such as Medicaid and SNAP, those reductions are dwarfed by the cost of the tax provisions.

“The enacted bill isn’t just mean-spirited; it’s also misleading,” House Budget Committee Democrats said in a statement, noting that the law provides more than $5 trillion in tax giveaways “predominantly for the wealthy and well connected.”

Tariff Policy Backfires, Widens Gap

Compounding the deficit is the failure of President Donald Trump’s tariff strategy. The CBO now projects that net customs revenues for fiscal year 2026 will be about $250 billion lower than previously estimated.

This follows a Supreme Court ruling that struck down the administration’s authority to impose tariffs under the International Emergency Economic Powers Act, leading to roughly $100 billion in refunds.

“The tariff windfall is evaporating faster than expected, and the Congressional Budget Office says it’s blowing a $200 billion hole in this year’s budget,” Yahoo Finance reported, citing the CBO’s monthly budget review.

The administration’s scramble to replace the lost revenue with temporary tariff authorities has proven inadequate, forcing the government to borrow at a staggering rate. The U.S. borrowed $431 billion in July alone, putting the nation on track to borrow more than $2 trillion this fiscal year despite not being in a recession.

Social Security Insolvency and Benefit Cuts

Although the CBO says the deficit is fueled in part by mandatory spending on programs such as Social Security, the national retirement system is funded by its own dedicated revenue stream. When costs outpace revenue growth, the program’s outlays will be forced down — not up.

The CBO projects that the Social Security Old-Age and Survivors Insurance (OASI) trust fund will exhaust its reserves in fiscal year 2032.

At that point, under current law, benefits must be reduced to match incoming revenues. The CBO and other analysts estimate that this would trigger an automatic benefit cut of roughly 28% for retirees and survivors.

“Social Security’s retirement trust fund is projected to go insolvent in Fiscal Year 2032 under the Congressional Budget Office’s new February 2026 Baseline, almost a year earlier than was estimated last year,” the Committee for a Responsible Federal Budget noted. “The resulting benefit cut could be extremely painful for many seniors counting on benefits.”

This accelerated timeline is partly attributed to recent legislation, including the Social Security Fairness Act, which expanded benefits, and the 2025 reconciliation act, which reduced income tax rates on Social Security benefits, thereby cutting a revenue stream that flows back to the trust funds.

A ‘Not Sustainable’ Fiscal Path

CBO Director Phillip Swagel stated bluntly that the agency’s budget projections “continue to indicate that the fiscal trajectory is not sustainable.”

The growing debt is reflected in surging net interest costs, which are projected to rise from $1 trillion in 2026 to $2.1 trillion in 2036, consuming a growing share of the federal budget.

“We’re on track to surpass $2 trillion in borrowing this fiscal year despite not being in a recession. That is not normal,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. “We are about to hit the sobering milestone of $40 trillion in gross national debt, and things are only likely to get worse.”