The Budget and Economic Outlook: 2025 to 2035

The Congressional Budget Office regularly publishes reports presenting its baseline projections of what the federal budget and the economy would look like in the current year and over the next 10 years if laws governing taxes and spending generally remained unchanged. This report is the latest in that series, presented in an abbreviated version to facilitate work on other Congressional priorities. The budget projections are based on CBO’s economic forecast, which reflects developments in the economy as of December 4, 2024. They also incorporate legislation enacted through January 6, 2025.

The Budget Outlook

Deficits

In CBO’s projections, the federal budget deficit in fiscal year 2025 is $1.9 trillion. Adjusted to exclude the effects of shifts in the timing of certain payments, the deficit grows to $2.7 trillion by 2035. It amounts to 6.2 percent of gross domestic product (GDP) in 2025 and drops to 5.2 percent by 2027 as revenues increase faster than outlays. In later years, outlays increase faster than revenues, on average. In 2035, the adjusted deficit equals 6.1 percent of GDP—significantly more than the 3.8 percent that deficits have averaged over the past 50 years.

Debt

From 2025 to 2035, debt swells as increases in mandatory spending and interest costs outpace growth in revenues. Federal debt held by the public rises from 100 percent of GDP this year to 118 percent in 2035, surpassing its previous high of 106 percent of GDP in 1946.

Outlays and Revenues

Federal outlays in 2025 total $7.0 trillion, or 23.3 percent of GDP. They remain close to that level through 2028 and then rise, reaching 24.4 percent of GDP in 2035 (if adjusted to exclude the effects of shifts in the timing of certain payments). The main reasons for that increase are growth in spending for Social Security and Medicare and rising net interest costs. Revenues total $5.2 trillion, or 17.1 percent of GDP, in 2025. They rise to 18.2 percent of GDP by 2027, in part because of the scheduled expiration of provisions of the 2017 tax act. Revenues decline as a share of GDP over the next two years, falling to 17.9 percent in 2029, but then generally increase, reaching 18.3 percent in 2035.

Changes in CBO’s Budget Projections

The deficit for 2025 is $0.1 trillion (or 4 percent) less in CBO’s current projections than it was in the agency’s June 2024 projections, and the cumulative deficit over the 2025–2034 period is smaller by $1.0 trillion (or 4 percent). The largest contributor to the cumulative decrease was growth in projected collections of individual income taxes, driven by greater projections of taxable income in CBO’s economic forecast.

The Economic Outlook

Economic Growth

In CBO’s projections, economic growth cools from an estimated 2.3 percent in calendar year 2024 to 1.9 percent in 2025 and 1.8 percent in 2026 amid higher unemployment and lower inflation. The Federal Reserve continues reducing interest rates through the end of 2026, which supports economic growth. Real GDP then grows by 1.8 percent per year, on average, through 2035. Roughly four-fifths of the growth over that period is due to increases in the productivity of the labor force. The rest is due to increases in the size of the labor force.

Inflation

The overall growth of prices slows slightly in 2025. Inflation as measured by the price index for personal consumption expenditures (PCE) falls from an estimated 2.5 percent in 2024 to a rate roughly in line with the Federal Reserve’s long-run goal of 2 percent in 2027 and stabilizes thereafter.

Interest Rates

The Federal Reserve began reducing the federal funds rate (the rate financial institutions charge each other for overnight loans) in September 2024. In CBO’s projections, those reductions continue through the end of 2026. Longer-term interest rates, such as the rate on 10-year Treasury notes, decline through the end of 2026 and then remain roughly flat.

Changes in CBO’s Economic Projections

Since June 2024, when CBO published its previous full economic forecast, the agency’s projections of the average growth rate of real GDP over the 2024–2026 period have changed little. CBO raised its forecast of the average unemployment rate for 2024 to 2026 and lowered its forecast of employment growth over that period. Inflation is expected to be slightly higher, on average, in 2025 and 2026 than the agency projected in June. The forecast of long-term interest rates for 2026 is also higher. After 2026, CBO’s current and previous forecasts are generally similar.

When October 1 (the first day of the fiscal year) falls on a weekend, certain payments that ordinarily would have been made on that day are instead made at the end of September and thus are shifted into the previous fiscal year. Because those shifts can distort budgetary trends, CBO often presents adjusted projections of deficits and outlays that treat the payments as if they were not subject to the shifts.