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U.S. federal debt rises when the government spends more than it collects and borrows to cover the gap. The annual gap is the deficit; the accumulated borrowing is debt. In the Congressional Budget Office’s (CBO’s) February 2026 current-law baseline, large primary deficits and rapidly increasing net interest costs push debt held by the public from 101% of gross domestic product (GDP) in 2026 to 120% in 2036. Lawmakers can change that path by reducing noninterest spending, raising revenues, or combining both, but the result depends on policy design, timing, economic responses, and the baseline used for comparison.
The CBO baseline is a projection under specified laws and economic assumptions—not a promise or a prediction of what will happen. Its figures provide a reference point for understanding the arithmetic and for measuring proposed changes. See The Budget and Economic Outlook: 2026 to 2036 for the complete assumptions.
Deficit and debt are different measures
A federal deficit is a one-year flow: outlays exceed revenues during a fiscal year. The Treasury finances that shortfall by borrowing, generally by issuing securities. Debt held by the public is the stock of those obligations held outside the federal government, including by households, financial institutions, businesses, the Federal Reserve, state and local governments, and foreign investors.
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If the government runs another deficit the next year, it borrows again and adds to the existing stock. A surplus would reduce borrowing for that year, although it would not automatically erase previously accumulated debt. Debt-to-GDP compares the stock with the size of the economy, making it useful for judging the burden relative to national income.
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The part of the deficit excluding interest is the primary deficit: noninterest outlays minus revenues. A primary deficit requires borrowing even before interest is paid. Interest then adds to the total deficit, and borrowing to pay that interest increases the debt on which future interest is charged.
What the CBO’s February 2026 baseline projects
CBO’s current-law baseline covers fiscal years 2026 through 2036. It assumes laws in place at the time of publication continue and uses specified economic assumptions. The following are projections, not observed 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 borrowing gap widens in dollars and relative to GDP. |
| Debt held by the public | 101% of GDP | 120% of GDP | The accumulated debt grows faster than the economy in this baseline. |
| Outlays | 23.3% of GDP | 24.4% of GDP | Spending takes a larger share of national output. |
| Revenues | 17.5% of GDP | 17.8% of GDP | Receipts remain comparatively stable as a share of GDP. |
| Net interest outlays | $1.0 trillion | $2.1 trillion | Interest costs more than double as debt and average rates affect payments. |
All figures in this table are from CBO’s 2026 outlook. A baseline is a benchmark: new legislation, court decisions, economic conditions, or changes in implementation can produce a different outcome.
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Persistent primary deficits
When revenues do not cover noninterest programs and operations, the government must borrow before interest is considered. Repeated primary deficits are the underlying source of debt accumulation. Even if interest rates were temporarily low, a continuing primary deficit would keep adding to the debt stock.
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Net interest and the compounding effect
Net interest is federal interest paid on debt held by the public, less interest income received by the government. CBO reports that the two principal determinants are the amount of debt and the average interest rate on that debt. Existing securities mature and are refinanced; as they are replaced, prevailing rates influence the government’s average cost. Higher rates therefore work through the budget gradually rather than changing every payment at once.
The process can reinforce itself. If the government borrows to pay interest, the debt balance becomes larger. A larger balance generates more interest in later years, leaving less room for other priorities or requiring still more borrowing. The CBO baseline’s increase from $1.0 trillion of net interest in 2026 to $2.1 trillion in 2036 illustrates the scale of this pressure, not a guaranteed result.
Social Security, Medicare, and other program growth
In the 2026 baseline, CBO attributes much of the rise in outlays as a share of GDP to Social Security and Medicare, together with growing interest costs. Demographic change increases the number of beneficiaries relative to workers in major retirement programs, while health-care costs and benefit rules affect Medicare spending. These are baseline-specific findings for 2026–2036, not timeless claims about every projection.
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CBO projects revenues to edge from 17.5% of GDP in 2026 to 17.8% in 2036, while outlays rise from 23.3% to 24.4%. A relatively stable revenue share does not mean receipts are fixed in dollars: wages, profits, prices, and other economic variables can change the tax base. It means that under current law and CBO’s assumptions, revenues do not rise enough relative to projected spending to prevent larger deficits.
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Economic conditions and new laws
Employment, incomes, inflation, productivity, and interest rates all affect tax receipts and spending. Recessions generally weaken revenues and can increase payments for programs tied to economic hardship; stronger growth can have the opposite effect. Legislation that changes tax rates, deductions, eligibility, benefit formulas, appropriations, or borrowing limits can move actual results away from the current-law baseline. CBO’s analysis of these channels is described in How Changes in Economic Conditions Might Affect the Federal Budget: 2026 to 2036.
Policy levers that can change the trajectory
The budget arithmetic is straightforward: reduce the primary deficit through lower noninterest spending, higher revenues, or a combination. Less primary borrowing means a smaller debt balance than otherwise, which can also reduce later interest costs. The distributional and economic consequences are not straightforward; two packages with the same ten-year deficit reduction can affect households, services, work incentives, and growth very differently.
Reduce mandatory spending
Mandatory programs operate under eligibility and benefit rules rather than annual appropriations. Changes could alter eligibility, benefit formulas, premiums, payment rates, or the timing of adjustments. Examples listed in CBO’s December 2024 compendium include options affecting Medicaid, Medicare, and Social Security. A proposal should specify which beneficiaries are affected, when changes begin, and whether protections apply to current recipients, future recipients, or both.
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Reduce discretionary spending
Congress generally sets discretionary funding through annual appropriations. Lower appropriations can reduce outlays relatively quickly, but the effect depends on which agencies, grants, defense activities, or domestic programs are changed and how agencies implement the reductions. Cutting a budget authority may not produce the same-year cash reduction if projects or contracts are already committed.
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Increase individual or business revenues
Revenue legislation can change tax rates, credits, deductions, exemptions, enforcement, or the definition of taxable income. CBO’s options include changes to individual income taxes, deductions, and payroll taxes. The budget effect depends on taxpayer behavior, the timing of implementation, and interactions with other provisions. A measure that raises the statutory rate may collect less than a simple rate-times-base calculation if it changes work, saving, investment, or reporting behavior.
Use a combined package
A mix of spending and revenue changes can distribute the adjustment across beneficiaries and taxpayers and reduce reliance on any single lever. Combining policies also creates interactions: a tax change can alter eligibility for income-tested benefits, while a benefit change can affect taxable income. The package should therefore be scored as a whole rather than by simply adding isolated estimates.
Change the timing or phase-in
Earlier action generally changes more budget years, while a delayed or gradual phase-in can give households and agencies time to adjust. Timing also affects interest savings: a dollar of deficit reduction in an early year prevents borrowing and interest in subsequent years. Conversely, a temporary measure may improve one budget window without changing the longer-run debt path.
How to compare real proposals
CBO’s Options for Reducing the Deficit: 2025 to 2034 lists 76 illustrative options. It makes no recommendation, and its estimates apply to the laws and baseline available in December 2024, before the February 2026 outlook. Inclusion in that menu is not an endorsement and does not mean an option has been enacted.
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Use the following checks when evaluating any proposal:
- Identify the baseline and years. Ask whether the estimate is measured against CBO’s 2026 current-law baseline or another benchmark, and whether it covers five years, ten years, or a longer period.
- Separate primary savings from interest savings. Determine how much comes from changing program spending or revenues and how much comes from reduced interest on a smaller debt balance.
- Map who pays and who receives less. Look at effects by income, age, health status, employment, geography, and type of taxpayer or beneficiary.
- Check implementation speed. A policy requiring new systems, regulations, or contracts may not produce its advertised effect immediately.
- Assess access and service effects. Spending reductions can change eligibility, provider participation, waiting times, public safety, infrastructure, or the quality of services—not just a line in the budget.
- Test economic sensitivity. Consider how growth, inflation, employment, and interest rates could alter the estimate. A score is not a guarantee under every economic scenario.
Why long-range debt numbers are scenarios, not forecasts
Ten-year projections already depend on assumptions; horizons of several decades add substantially more uncertainty about demographics, productivity, interest rates, health spending, tax policy, and future legislation. In its May 2025 extended baseline, CBO showed debt held by the public rising from 100% of GDP in 2025 to 156% in 2055. CBO explicitly said those extended-baseline figures are not predictions; they illustrate what could happen if the specified assumptions and current-law framework persisted. Read the scenarios in The Long-Term Budget Outlook Under Alternative Scenarios for the Economy and the Budget as direction indicators, not a fixed timetable.
Common mistakes when interpreting federal debt
- Calling the deficit “the debt.” The deficit is one year’s change; debt is the accumulated balance.
- Using gross debt without saying so. Debt held by the public is the measure used in the CBO figures here and excludes debt the government owes to its own accounts.
- Treating a baseline as a prediction. It is conditional on current law and stated assumptions.
- Ignoring interest. A plan that reduces primary deficits can also lower future interest, while a plan that increases borrowing can raise it.
- Comparing scores from different baselines as if they were interchangeable. A 2024 option estimate and a 2026 estimate may differ because laws, economic assumptions, and starting debt differ.
- Assuming equal budget effects imply equal policy effects. Distribution, access to benefits, public services, incentives, and macroeconomic consequences require separate analysis.
Bottom line
The federal debt trajectory is driven chiefly by recurring primary deficits and the interest generated by an expanding debt stock. CBO’s February 2026 baseline projects a $1.9 trillion deficit in 2026 growing to $3.1 trillion in 2036, with debt held by the public reaching 120% of GDP and net interest reaching $2.1 trillion by 2036. Policies can bend that path only by changing the underlying gap between revenues and noninterest spending—through spending reductions, revenue increases, or both—and their true effect must be judged against a dated baseline, over a stated time period, with distributional and economic consequences included.
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