U.S. federal debt grows when the government spends more than it collects and borrows to cover the gap. The yearly gap is the deficit; the accumulated borrowing is debt. In the Congressional Budget Office’s (CBO) February 2026 current-law baseline, large primary deficits and rapidly rising net-interest costs push debt held by the public from 101% of GDP in fiscal year (FY) 2026 to 120% in FY2036. Policies can change that path by reducing noninterest spending, raising revenues, or doing both, but their effects depend on timing, design, economic responses and the baseline used for comparison.
Debt and the deficit are different measures
The federal budget records activity over a period, while debt records the accumulated result. A deficit occurs in a fiscal year when total outlays exceed revenues. Treasury finances that shortfall mainly by issuing debt. Each year’s borrowing adds to the outstanding stock of federal debt.
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The arithmetic is straightforward:
- Deficit = total outlays − revenues.
- Primary deficit = noninterest outlays − revenues.
- Debt next year = debt this year + borrowing, with adjustments for financial transactions and other technical factors.
The primary deficit shows how much borrowing the budget requires before interest on existing debt is counted. Even if the primary budget were balanced, interest payments could still require borrowing and make total debt rise. Conversely, a primary surplus can offset some or all interest costs.
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CBO’s baseline is a projection under current law and specified economic assumptions. It is not a promise or a prediction of what lawmakers will ultimately do. Future legislation, economic conditions and administrative decisions can produce different outcomes.
What the February 2026 baseline shows
CBO’s February 11, 2026, Budget and Economic Outlook: 2026 to 2036 provides the most relevant ten-year benchmark for this question. The figures below are projections for the named fiscal years, not recorded future results.
| Measure | FY2026 projection | FY2036 projection | What changes |
|---|---|---|---|
| Federal deficit | $1.9 trillion (5.8% of GDP) | $3.1 trillion (6.7% of GDP) | The annual gap widens in dollars and as a share of GDP. |
| Debt held by the public | 101% of GDP | 120% of GDP | The accumulated debt grows faster than the economy in the baseline. |
| Total outlays | 23.3% of GDP | 24.4% of GDP | Spending rises 1.1 percentage points relative to GDP. |
| Federal revenues | 17.5% of GDP | 17.8% of GDP | Receipts remain comparatively stable, rising 0.3 percentage points. |
| Net interest outlays | $1.0 trillion | $2.1 trillion | Interest spending more than doubles in nominal dollars. |
In that projection, outlays grow substantially more than revenues as a share of GDP. CBO identifies Social Security, Medicare and net interest as the main contributors to the increase in outlays relative to GDP. The result is a larger primary deficit and, as the debt stock expands, a larger interest bill.
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Primary deficits require new borrowing
Program spending and other noninterest outlays exceed revenues in a primary deficit. The Treasury must borrow to finance that gap. Repeated primary deficits add debt even before interest is considered. Their size reflects choices about benefit formulas, eligibility, discretionary programs, tax rates, deductions, credits and enforcement, as well as the condition of the economy.
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Demographics are important for large mandatory programs. As the population ages, more people receive Social Security, and enrollment and per-person costs in Medicare increase. CBO’s 2026 baseline incorporates the laws and economic assumptions in force when it was prepared; a change in law or a different economic path would alter the estimate.
Net interest compounds the pressure
Net interest is the government’s interest expense on debt held by the public minus certain interest income. CBO reports that two factors principally determine it: the amount of debt outstanding and the average interest rate paid on that debt.
Existing securities mature and are refinanced. If market rates are higher when the Treasury replaces them, the average rate on the portfolio gradually rises. When the government borrows to pay interest, the larger debt balance creates more securities on which future interest is owed. That feedback helps explain why CBO projects net interest outlays increasing from $1.0 trillion in FY2026 to $2.1 trillion in FY2036.
Interest does not represent a program that can be eliminated without addressing the debt itself. Lowering future interest costs requires reducing the amount borrowed, lowering the rates paid, or both; the government cannot directly set all market rates.
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Why revenues and outlays can diverge
Revenues come mainly from individual and corporate income taxes, payroll taxes and other receipts. In the 2026–2036 baseline, revenues remain near 18% of GDP, moving from 17.5% to 17.8%. That stability is a projection under current law, not a permanent rule. Tax legislation, taxable incomes, capital gains, employment, inflation and other economic variables can move receipts above or below it.
Outlays include mandatory programs, discretionary appropriations, net interest and other spending. CBO projects them at 23.3% of GDP in FY2026 and 24.4% in FY2036. Social Security and Medicare growth, together with interest, accounts for much of the increase in this baseline. A policy that slows one category may affect other categories indirectly—for example, through economic growth, eligibility changes or administrative costs.
Economic conditions feed both sides of the ledger. Faster growth can increase taxable income and reduce some safety-net spending; higher inflation can raise nominal tax receipts while also increasing indexed benefits and interest rates. Recessions generally reduce revenues and increase some outlays. CBO’s April 21, 2026, analysis of economic conditions describes how changes in income, inflation, interest rates and other variables can alter projected deficits and debt.
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How policy can change the trajectory
The broad fiscal mechanism is to narrow the primary deficit. A package can do that through lower noninterest spending, higher revenues, or a combination. Relative to an unchanged baseline, less borrowing also reduces future interest costs, although the timing and size of that feedback depend on interest rates and how quickly the changes take effect.
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Reduce spending
- Mandatory programs: Changes to benefit formulas, eligibility, premiums, cost sharing or payment rates can affect programs such as Social Security, Medicare and Medicaid. The distributional effect depends on which beneficiaries are affected and whether protections are included.
- Discretionary programs: Congress can change annual appropriations for defense and nondefense activities. Savings depend on the specific accounts, the start date and whether lower funding reduces services, staffing or grants.
- Other outlays: Revisions to agricultural support, veterans’ programs, federal employee compensation or other policies can produce savings, but each option has its own beneficiaries and implementation constraints.
Increase revenues
- Tax rates and brackets: Higher individual or corporate rates can raise receipts, while changing behavior and the tax base.
- Deductions, credits and exclusions: Limiting or redesigning tax expenditures can broaden the base without changing statutory rates for every taxpayer.
- Payroll taxes and other levies: Changes can raise dedicated or general revenues, with effects that vary by earnings, employers and program rules.
- Administration and compliance: Better enforcement may increase collections, although the amount depends on staffing, legal authority and taxpayer behavior.
Combine spending and revenue changes
A mixed package can spread the burden across taxpayers and beneficiaries and may achieve a given deficit reduction with smaller changes in any single program. It also creates more design choices: lawmakers can phase in provisions, protect lower-income households, or pair benefit changes with credits or other offsets. The resulting budget effect must be measured for the package as a whole rather than inferred by simply adding headline estimates made under different assumptions.
What CBO’s policy menu does—and does not—say
CBO’s Options for Reducing the Deficit: 2025 to 2034, published December 12, 2024, presents 76 illustrative options involving mandatory and discretionary spending and revenues. Examples include options affecting Medicaid, Medicare, Social Security, discretionary programs, individual income taxes, deductions and payroll taxes.
The compendium is a menu of analytically estimated choices, not a recommendation. Its estimates use the baseline and ten-year horizon available in 2024. A later baseline, a different effective date or a redesigned provision can produce a different score. Inclusion of an option does not mean it was enacted or that CBO favors it.
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How to compare a real proposal
When evaluating legislation or a campaign plan, examine more than its advertised first-year savings. Use this checklist:
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- Identify the baseline and period. Ask whether the estimate is measured against CBO’s current-law baseline, which fiscal years are included and whether figures are nominal dollars or a share of GDP.
- Separate primary savings from interest savings. Determine how much comes from lower noninterest deficits and how much comes from reduced interest costs later.
- Map who pays and who receives less. Break out effects by income, age, health status, employment, state and other relevant groups.
- Check the implementation schedule. A provision beginning in 2030 has little effect on near-term deficits; a phase-in may change both behavior and political feasibility.
- Assess services and access. Lower spending can mean fewer benefits, narrower eligibility, lower provider payments or reduced public services. Revenue changes can affect after-tax income and investment incentives.
- Test economic sensitivity. Ask how the result changes with different growth, inflation and interest-rate assumptions. Economic feedback can raise or reduce the advertised budget effect.
- Check enforceability and expiration rules. Temporary savings, scheduled sunsets and assumptions about agency implementation may not deliver the same long-run result.
What long-run projections imply
Ten-year estimates show the near-term direction, but debt dynamics extend beyond 2036. CBO’s May 28, 2025, Long-Term Budget Outlook Under Alternative Scenarios for the Economy and the Budget projected debt held by the public rising from 100% of GDP in 2025 to 156% in 2055 under its extended baseline. CBO explicitly says those extended-baseline figures are scenarios, not predictions.
Long horizons are especially sensitive to assumptions about productivity and economic growth, interest rates, immigration, fertility, health costs, future legislation and policy responses. A projection is useful for showing the consequences of specified assumptions; it cannot establish that any one path is inevitable.
A practical way to think about the trajectory
Start with the primary balance: are revenues covering noninterest spending? If not, debt rises before interest. Next examine the debt-to-GDP ratio: even a stable dollar deficit can become more or less burdensome depending on economic growth. Finally, examine interest costs and refinancing risk. A policy that reduces primary deficits early generally has more time to lower the debt stock and the interest that accumulates on it, but its distributional and economic effects still determine whether it is workable.
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Under CBO’s February 2026 current-law baseline, the direction is clear: deficits remain large, outlays rise faster than revenues as a share of GDP, and net interest becomes a much larger expense. Changing that trajectory requires legislation that narrows primary deficits through spending reductions, revenue increases or a credible combination, evaluated against a dated baseline and with its effects on households, services and the wider economy made explicit.
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