The U.S. national debt is on pace to break a record set in the wake of World War II in four years, while annual budget deficits are projected to balloon to $3 trillion a year a decade from now, according to a new analysis by Congress’s financial watchdog.
The nonpartisan Congressional Budget Office (CBO) released a budget and economic outlook spanning the next decade, which projected that federal budget deficits will rise from an estimated $1.9 trillion in fiscal year 2026 to $3.1 trillion in 2036.
Mounting budget deficits will push the national debt higher, with the gross federal debt rising from an estimated $39.4 trillion at the end of fiscal year 2026 to $63 trillion in 2036. That will also increase the amount of debt held by the public from $32 trillion to $56 trillion in that period, and with it the public as a share of gross domestic product (GDP) – a measure economists prefer to use in comparing a nation’s debt to the size of its economy.
U.S. debt held by the public is estimated to rise to 108% of GDP in 2030, which would surpass the record of 106% set in 1946 as the U.S. was in the process of demobilization after the end of World War II. A decade from now, debt held by the public as a percentage of GDP is projected to reach 120%.
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Making the fiscal picture even worse, the CBO estimates that the debt held by the public is expected to grow faster than U.S. GDP as projected in the years ahead, which could have far-reaching implications for the nation’s fiscal and economic outlook. It explained that could slow economic growth and reduce private investment, while hiking interest costs from servicing the debt.
“The United States’ fiscal position would be more vulnerable to an increase in interest rates, because the larger debt is, the more an increase in interest rates raises debt-service costs,” CBO wrote.
“The risk of a fiscal crisis – that is, a situation in which investors lose confidence in the value of the U.S. government’s debt – would increase. Such a crisis would cause interest rates to rise abruptly and other economic and financial disruptions to occur,” CBO continued.
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The budget watchdog added that higher inflation expectations could erode the dollar’s status as the dominant international reserve currency.
Further, it could cause lawmakers to feel constrained about using tax and spending policies in response to unforeseen events, such as to stimulate the economy or to strengthen national defense.
Under the CBO’s outlook, net interest costs are expected to surge from a little over $1 trillion in fiscal year 2026, representing 3.3% of GDP, to more than $2.1 trillion in 2036, when it would amount to 4.6% of GDP.
Interest costs are expected to account for nearly 14% of total federal spending this year, but would rise to nearly 19% of federal spending in 2036 under the CBO’s projection.
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Michael Peterson, CEO of the Peter G. Peterson Foundation, called the CBO’s latest report “an urgent warning to our leaders about America’s costly fiscal path.”
“Improving affordability is a top priority for the nation. Borrowing trillion after trillion takes us in the wrong direction, leading to higher interest costs and higher prices for everyday needs,” he said. “This election year, voters understand the connection between rising debt and their personal economic condition. And the financial markets are watching.”
“Stabilizing our debt is an essential part of improving affordability, and must be a core component of the 2026 campaign conversation,” Peterson added.
Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget (CRFB), said in a statement that, “There are no surprises here or bright spots of encouraging news: our nation’s deficits, debt, interest payments and trust funds are all in terrible shape.”
“Fiscal leadership is not easy – it requires committing to not making the situation worse by withholding support for new legislation that is debt financed, focusing on actual solutions rather than casting blame, and being willing to make tough policy choices that will be the centerpiece of any serious debt deal,” she continued.
“This is too important a moment for our leaders to shirk these responsibilities, and I encourage every Member of Congress and the President to take a cold hard look at these numbers and pledge to fix our nation’s finances before it’s too late,” MacGuineas added.
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