CBO: National Debt to Soar by $23.9 Trillion If Tax Cuts Not Extended

The national debt clock displayed at a bus station in Washington on Jan. 2, 2025. Madalina Vasiliu/The Epoch Times

A new Congressional Budget Office (CBO) report shows that the U.S. national debt is projected to increase by $23.9 trillion over the next decade even if Congress does not extend President-elect Donald Trump’s tax cuts.

The nonpartisan budget watchdog released its new 10-year baseline budget and economic outlook on Jan. 17. By 2035, public debt is expected to reach $52 trillion, accounting for 118 percent of the GDP.

According to the CBO, this year’s budget deficit will be about $1.9 trillion, little changed from fiscal year 2024.

The federal government is forecast to run annual deficits of $2 trillion in 2030, climbing to as high as $2.637 trillion in 2033. Cumulative deficits were $1 trillion smaller from the previous June 2024 report, mainly because of predicted growth in individual income tax collections.

Additionally, the shortfall will represent 6.1 percent of the GDP in 2035, which the CBO says is “significantly more than the 3.8 percent that deficits have averaged over the past 50 years.”

Tax revenues are expected to hover around the 50-year average and rise every year in the budget window, topping $8 trillion by 2035.

Federal spending will be $7 trillion in 2025, accounting for more than 23 percent of the GDP. By 2035, outlays will surpass $10.5 trillion and represent nearly one-quarter of the national economy.

The projected increase in net outlays is fueled by greater spending for mandatory programs—Social Security, Medicare, and Medicaid—that will surpass $6 trillion in 2033.

A Jan. 13 demographic outlook for 2025 to 2055 shows that annual deaths will exceed annual births beginning in 2033.

“We’re already an aging society, and the aging of our society is driving mandatory outlays,” CBO director Philip Swagel told reporters at a press conference shortly after the report’s release.

Interest payments will continue to have a significant role in the U.S. government’s fiscal obligations.

Swagel noted that net interest costs substantially contribute to the deficits and will soon be equal to discretionary spending for defense or non-defense outlays.

Over the 10-year budget window, cumulative net interest costs will be nearly $14 trillion.

A continued surge in U.S. bond yields could add to debt servicing payments in this period, he noted.

“A 50-basis-point increase in interest rates, like we’ve seen, would certainly increase net interest outlays by about $2 trillion now that there’s more debt,” Swagel told reporters.

Since the Federal Reserve cut interest rates in September 2024, yields in the U.S. Treasury market have rocketed, with the benchmark 10-year bond rallying more than 100 basis points. The unexpected rise has been attributed to various causes, including investors resetting monetary policy expectations and fiscal concerns.

For the broader economy, the CBO anticipates real GDP growth will remain at an average annual rate of 1.8 percent over the next decade.

Congressional Budget Office (CBO) Director Phillip Swagel testifies before the Legislative Branch Subcommittee of the House Appropriations Committee in Washington on Feb. 12, 2020. Sarah Silbiger/Getty Images

Inflation could be slightly above the Federal Reserve’s 2 percent target. The consumer price index is projected to average 2.3 percent, but the central bank’s preferred personal consumption expenditure (PCE) price index will touch 2 percent in 2027.

The labor market is expected to cool down. While the unemployment rate will remain low at a range of 4.3 and 4.4 percent, average monthly changes in payroll employment are projected to average 52,000 from 2028 to 2029 and 57,000 from 2030 to 2035,

The Trump Tax Cuts

CBO officials put together the latest projection based on the expiration of the 2017 Tax Cuts and Jobs Act (TCJA) at the end of the year, which will result in an increase to individual tax rates across the board.

The CBO provided a mixed assessment of the TCJA.

By allowing the Trump-era tax cuts to expire, federal revenues would rise, government borrowing would decrease, and more funds would be available for private investments.

“At the same time, the tax changes reduce the supply of labor, diminish incentives in the tax code for saving and investment, and reduce the overall demand for goods and services,” Swagel said.

In a December 2024 report, the CBO referenced the “crowd out” effect. This means that as the government struggles to manage its ballooning deficits, Washington would issue more debt, crowding out private domestic investment. It believes that generating more revenues would reduce the amount of borrowing, freeing more capital for the private sector.

As Congress debates renewing the TCJA, lawmakers are stressing the fiscal impact of making the Trump-era tax cuts permanent.

Treasury nominee Scott Bessent, a billionaire Wall Street veteran, says the United States would face “an economic calamity” that would trigger “financial instability” weighing on workers and the middle class.

Amid deficit concerns, Bessent told senators that the federal government’s spending problem is spiraling out of control.

“We do not have a revenue problem in the United States of America. We have a spending problem,” he said during a confirmation hearing in front of the Senate Finance Committee on Jan. 16. “This is one of the things that got me out from behind my desk and my quiet life in this campaign, was the thought that this spending is out of control.”

Following the CBO’s outlook, the Committee for a Responsible Federal Budget urged officials to shift the debt to a more sustainable path.

“With debt growing to record levels, policymakers should not be implementing more deficit-increasing policies,” the independent policy organization said in a statement. “Instead, policymakers should work together on a deficit reduction plan that puts everything on the table and consider a wide array of offsets options that look at both tax and spending policies.”

Michael A. Peterson, the CEO of the Peter G. Peterson Foundation, recommended Washington to rely on “neutral, nonpartisan estimates like this one from CBO.”

“Today’s report shows a daunting outlook, but the good news is that there are many policy solutions available to address our fiscal challenges,” he said in a statement. “As we approach inauguration day, our leaders have a new opportunity to secure America’s economic future by putting us on a stronger, more sustainable fiscal trajectory.”

As the president-elect outlines his administration’s policies in the coming weeks, the CBO said it will update its budget and economic outlook this summer.