The Budget and Economic Outlook: 2026 to 2036

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. The budget projections are based on CBO's economic forecast, which reflects trade policy as of November 20, 2025, and economic developments and laws in place as of December 3, 2025. The budget projections also incorporate the effects of laws in place as of January 14, 2026. (CBO's projections do not include the effects of appropriation acts passed by the House and Senate after January 14, 2026.)

The Budget Outlook

Deficits

In CBO's projections, the federal budget deficit in fiscal year 2026 is $1.9 trillion and grows to $3.1 trillion by 2036. Relative to the size of the economy, the deficit is 5.8 percent of gross domestic product (GDP) in 2026 and grows to 6.7 percent in 2036, which is greater than the 3.8 percent deficits averaged over the past 50 years. Rising net interest costs drive much of that increase. The primary deficit, which excludes those net interest costs, totals 2.6 percent of GDP this year and stays below that level through 2036, when it totals 2.1 percent.

Debt

From 2026 to 2036, large and growing deficits cause debt to increase. Federal debt held by the public rises from 101 percent of GDP this year to 120 percent in 2036, surpassing its previous high of 106 percent of GDP in 1946.

Outlays and Revenues

In CBO's projections, federal outlays in 2026 total $7.4 trillion, or 23.3 percent of GDP. Relative to the size of the economy, outlays remain near their 2026 level through 2028 and then rise, reaching 24.4 percent of GDP in 2036; that trend is a result of greater spending on Social Security and Medicare and growth in net interest costs that are partly offset by declining outlays for discretionary programs. Revenues total $5.6 trillion, or 17.5 percent of GDP, in 2026. Over the 2026–2036 period, increasing individual income tax receipts and remittances from the Federal Reserve are partly offset by declining customs duties measured in relation to the size of the economy. In 2036, revenues total 17.8 percent of GDP, slightly above their 50-year average of 17.3 percent.

Changes in CBO's Budget Projections

The deficit for 2026 is $0.1 trillion (or 8 percent) more in CBO's current projections than it was in the agency's January 2025 projections, and the cumulative deficit over the 2026–2035 period is $1.4 trillion (or 6 percent) greater. The 2025 reconciliation act (Public Law 119-21) and administrative actions related to immigration increased CBO's projections of deficits by $4.7 trillion and $0.5 trillion, respectively, after changes in the economy and related debt-service costs are accounted for. By contrast, higher tariffs reduced deficits by $3.0 trillion (including the effects of related changes in the economy and net interest payments).

Note: 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, here CBO presents adjusted projections of deficits and outlays that treat the payments as if they were not subject to the shifts.

The Economic Outlook

Output Growth and the Labor Market

In CBO's projections, the 2025 reconciliation act and the rebound in economic activity following last fall's lapse in discretionary appropriations boost output growth in calendar year 2026, but that growth is partially offset by the effects of last year's increases in tariffs and increased immigration enforcement. Growth of real GDP (that is, GDP adjusted to remove the effects of changes in prices) moderates in later years of the projection period, reflecting various offsetting factors, including faster productivity growth as generative artificial intelligence (AI) is more widely adopted and continued slow growth of the labor supply as the population ages.

Employment growth is projected to rebound from its 2025 dip with the pickup in overall economic activity. The unemployment rate reaches 4.6 percent in 2026 and then declines to 4.2 percent in 2032.

Inflation and Interest Rates

The overall growth of prices slows slightly in 2026. Inflation as measured by growth in the price index for personal consumption expenditures (PCE) softens in 2026 as the effects of higher tariffs on inflation continue to wane. Inflation returns to a rate roughly in line with the Federal Reserve's long-run goal of 2 percent in 2030 and stabilizes thereafter.

In CBO's projections, the Federal Reserve reduces the federal funds rate (the rate financial institutions charge each other for overnight loans) in 2026 to address downside risks to the labor market. Longer-term interest rates, such as the rate on 10-year Treasury notes, rise gradually in 2027 and remain relatively stable in later years.

Changes in CBO's Economic Projections

Real GDP growth is greater in 2026 in CBO's current projections (partly because of the effects of the 2025 reconciliation act) than it was in the agency's January 2025 projections but is generally the same in later years, reflecting factors that both increase and decrease economic activity. Inflation from 2026 to 2029 is now expected to be higher than the agency projected last year, mostly because of the effects of higher tariffs. As a result of those revisions, nominal GDP from 2026 to 2035 is greater in the current projections than it was in last year's. The forecast for short-term interest rates is generally the same as it was last January, but the current forecast for long-term interest rates is higher.