US budget deficit forecast to be $1-trillion higher than expected

Washington DC — US federal budget deficits will be nearly $1-trillion higher over the next decade than projected in January by the Congressional Budget Office (CBO) as a result of tax and spending legislation and tariffs, a budget watchdog said on Wednesday.

The latest forecasts from the Committee for a Responsible Federal Budget (CRFB) show a cumulative deficit of $22.7-trillion from fiscal 2026 to 2035, compared with the CBO’s January forecast of $21.8-trillion, which was based on laws and policies that were in place before US President Donald Trump took office in January.

The CBO, Congress’ non-partisan budget referee agency, said on Monday that it will not issue its customary midyear budget update this year and will issue its next 10-year budget and economic outlook in early 2026, offering no explanation for the move.

Tax and spending bill

The CRFB, which advocates for deficit reduction, projected a $1.7-trillion deficit in fiscal 2025, or 5.6% of GDP, down slightly from $1.83-trillion in 2024 and the CBO’s 2025 projection of $1.87-trillion in January. But it said deficits are forecast to rise steadily  over the decade, reaching $2.6-trillion, or 5.9% of GDP, by 2035.

The new CRFB estimates include the budget effects of the One Big Beautiful Bill Act tax and spending bill, as well as tariffs that are already in place. But like the CBO, it did not include the dynamic economic effects on growth from these changes, a forecasting rule that has drawn criticism from the Trump administration.

The group projects the tax cut and spending bill to increase deficits, including interest, by $4.6-trillion through 2035, adding another year to the CBO’s $4.1-trillion cost estimate through 2034. But the CRFB estimates that this will be offset by $3.4-trillion worth of extra import duty revenue over the next decade due to President Donald Trump’s new tariffs.

New rules restricting eligibility for health insurance subsidies will reduce deficits by another $100bn through 2035, and Congress’ rescission of prior funding to foreign aid, public broadcasting and other programs would save another $100bn if sustained over a decade, the CRFB said. Net interest payments on the national debt will total $14-trillion over the decade, it projected, rising from nearly $1-trillion, or 3.2% of GDP, in 2025 to $1.8-trillion, or 4.1% of GDP, in 2035.

The forecasts are based on legislative and tariff changes since January but keep the CBO’s economic forecasts unchanged.

Alternative scenario

 Under an alternative scenario forecast by the CRFB, the budget picture looks far worse, boosting deficits nearly $7-trillion higher than the CBO baseline. This scenario would see a significant part of Trump’s tariffs cancelled if the Court of International Trade’s ruling against many of the new tariffs is upheld, cutting $2.4-trillion from revenues over a decade.

The alternative scenario also assumes the extension of a number of temporary tax cuts in the One Big Beautiful Bill Act, including tax breaks on overtime, tips, Social Security income and car loan interest, higher state and local tax deduction allowances, and full expensing of factory investments, adding $1.7-trillion to deficits over 10 years.

The CRFB’s alternative scenario also ditches the CBO’s projection of a decline in 10-year US treasury yields over the decade to about 3.8%. If that interest rate stays at the current level of about 4.3%, interest costs would grow by about $1.6-trillion through 2035, the CRFB said.

The total 2035 debt-to-GDP ratio would grow from 118% in the CBO January baseline to 120% under the CRFB’s projected baseline scenario and 134% under the CRFB’s alternative scenario.

Reuters