The Budget and Economic Outlook: 2025 to 2035

              

By the Numbers

The Budget Outlook, by Fiscal Year

Notes:

when october 1(the first day of fiscal year) falls on a weekend , certain payments that ordainary would

have been made on that day are instead made at the end of september and thus are shifted into the previous fiscal year .Outlays and deficits have been adjusted to remove the effects of those shifts.

chip= children's Health Insurance Program; GDP = gross domestic product.

The Economic Outlook, by Calendar Year

Notes:  GDP = gross domestic produc; PCE = personal consumption expenditures

                 

The Budget and Economic Outlook: 2025 to 2035

The Congressional Budget Office regularly publishes reports presenting its baseline projections of what the federal budget and the economy would look like in the current year and over the next 10 years if laws governing taxes and spending generally remained unchanged. This report is the latest in that series, presented in an abbreviated version to facilitate work on other Congressional priorities. The budget projections are based on CBO’s economic forecast, which reflects developments in the economy as of December 4, 2024. They also incorporate legislation enacted through January 6, 2025.

The Budget Outlook

Projections for 2025

Budget deficit: $1.9 trillion

Debt held by the public: 100% of GDP

Outlays: $7.0 trillion

Revenues: $5.2 trillion

Deficits

In CBO’s projections, the federal budget deficit in fiscal year 2025 is $1.9 trillion. Adjusted to exclude the effects of shifts in the timing of certain payments, the deficit grows to $2.7 trillion by 2035. It amounts to 6.2 percent of gross domestic product (GDP) in 2025 and drops to 5.2 percent by 2027 as revenues increase faster than outlays. In later years, outlays increase faster than revenues, on average. In 2035, the adjusted deficit equals 6.1 percent of GDP—significantly more than the 3.8 percent that deficits have averaged over the past 50 years.

Debt

From 2025 to 2035, debt swells as increases in mandatory spending and interest costs outpace growth in revenues. Federal debt held by the public rises from 100 percent of GDP this year to 118 percent in 2035, surpassing its previous high of 106 percent of GDP in 1946.

Outlays and Revenues

Federal outlays in 2025 total $7.0 trillion, or 23.3 percent of GDP. They remain close to that level through 2028 and then rise, reaching 24.4 percent of GDP in 2035 (if adjusted to exclude the effects of shifts in the timing of certain payments). The main reasons for that increase are growth in spending for Social Security and Medicare and rising net interest costs. Revenues total $5.2 trillion, or 17.1 percent of GDP, in 2025. They rise to 18.2 percent of GDP by 2027, in part because of the scheduled expiration of provisions of the 2017 tax act. Revenues decline as a share of GDP over the next two years, falling to 17.9 percent in 2029, but then generally increase, reaching 18.3 percent in 2035.

Changes in CBO’s Budget Projections

The deficit for 2025 is $0.1 trillion (or 4 percent) less in CBO’s current projections than it was in the agency’s June 2024 projections, and the cumulative deficit over the 2025–2034 period is smaller by $1.0 trillion (or 4 percent). The largest contributor to the cumulative decrease was growth in projected collections of individual income taxes, driven by greater projections of taxable income in CBO’s economic forecast.

Note: When October 1 (the first day of the fiscal year) falls on a weekend, certain payments that ordinarily would have been made on that day are instead made at the end of September and thus are shifted into the previous fiscal year. Because those shifts can distort budgetary trends, CBO often presents adjusted projections of deficits and outlays that treat the payments as if they were not subject to the shifts.

The Budget Outlook, by Fiscal Year

The Budget Outlook in Six Figures

The Economic Outlook

Outlook for 2025–2035

Over the next two years, economic growth slows, and inflation continues to decline.

After 2026, economic growth and inflation remain moderate.

Total Outlays and Revenues

Measured as a percentage of GDP, federal outlays in CBO’s projections exceed their 50-year average every year from 2025 to 2035. Revenues remain below their 50-year average in 2025 but rise above it thereafter.

Percentage of GDP

Outlays, by Category

In CBO’s projections, rising spending for Social Security and Medicare boosts mandatory outlays, and discretionary spending shrinks as a share of GDP. Net outlays for interest increase as debt mounts. Interest costs exceed outlays for defense from 2025 to 2035 and exceed outlays for nondefense discretionary programs from 2027 to 2035. From 2027 on, interest costs are greater in relation to GDP than at any point since at least 1940 (the first year for which the Office of Management and Budget reports such data).

Percentage of GDP

Revenues, by Category

Receipts from individual income taxes rise over the next three years, primarily because of scheduled increases in most tax rates, and then roughly stabilize as a share of GDP. After 2025, corporate income tax receipts decrease in relation to GDP, largely because of other scheduled changes in tax rules, increased claims of tax credits, and slower growth of corporate profits relative to overall growth in the economy.

Percentage of GDP

‌Total Deficit, Net Interest Outlays, and Primary Deficit

In CBO’s projections, the total deficit—the amount by which outlays exceed revenues—equals 6.1 percent of GDP in 2035. By that year, net interest payments grow to 4.1 percent of GDP and account for about one-sixth of all federal spending. The primary deficit (which excludes those payments) equals 2.1 percent of GDP in 2035.

Percentage of GDP

Changes in CBO’s Projections of the 10-Year Deficit Since June 2024

Deficits from 2025 to 2034 are projected to total $21.1 trillion, $1.0 trillion less than CBO projected in June. Most of that decrease is due to economic changes to CBO’s projections, particularly increases in projected revenues from individual income taxes. Legislative changes and technical (that is, neither economic nor legislative) changes boosted projected deficits. Those increases offset more than half of the decrease from economic changes. (For more details about changes to CBO’s budget projections, see Appendix A.)

Trillions of dollars

Federal Debt Held by the Public

Debt held by the public rises each year. From 2025 to 2035, it swells from 100 percent of GDP to 118 percent—an amount greater than at any point in the nation’s history. (For more details about CBO’s budget projections, see Appendix B.)

Percentage of GDP

The Economic Outlook

Outlook for 2025–2035

Over the next two years, economic growth slows, and inflation continues to decline.

After 2026, economic growth and inflation remain moderate.

Economic Growth

In CBO’s projections, economic growth cools from an estimated 2.3 percent in calendar year 2024 to 1.9 percent in 2025 and 1.8 percent in 2026 amid higher unemployment and lower inflation. The Federal Reserve continues reducing interest rates through the end of 2026, which supports economic growth. Real GDP then grows by 1.8 percent per year, on average, through 2035. Roughly four-fifths of the growth over that period is due to increases in the productivity of the labor force. The rest is due to increases in the size of the labor force.

Inflation

The overall growth of prices slows slightly in 2025. Inflation as measured by the price index for personal consumption expenditures (PCE) falls from an estimated 2.5 percent in 2024 to a rate roughly in line with the Federal Reserve’s long-run goal of 2 percent in 2027 and stabilizes thereafter.

Interest Rates

The Federal Reserve began reducing the federal funds rate (the rate financial institutions charge each other for overnight loans) in September 2024. In CBO’s projections, those reductions continue through the end of 2026. Longer-term interest rates, such as the rate on 10-year Treasury notes, decline through the end of 2026 and then remain roughly flat.

Changes in CBO’s Economic Projections

Since June 2024, when CBO published its previous full economic forecast, the agency’s projections of the average growth rate of real GDP over the 2024–2026 period have changed little. CBO raised its forecast of the average unemployment rate for 2024 to 2026 and lowered its forecast of employment growth over that period. Inflation is expected to be slightly higher, on average, in 2025 and 2026 than the agency projected in June. The forecast of long-term interest rates for 2026 is also higher. After 2026, CBO’s current and previous forecasts are generally similar.

The Economic Outlook, by Calendar Year

The Economic Outlook in Six Figures

Outlook for Economic Growth

Real GDP grows by 1.9% in 2025 and 1.8% in 2026

Growth of Real GDP

The growth of economic output, as measured by the nation’s GDP, is expected to moderate in 2025, reflecting slower growth in consumer and government spending. CBO expects that more moderate economic growth to continue in 2026 as consumer spending slows further and investment in private nonresidential structures declines.

Residential Investment

Real residential investment, which includes home construction, renovations, and brokers’ commissions, grew by an estimated 2.5 percent in 2024, contributing 0.1 percentage point to real GDP growth. In CBO’s projections, that contribution rises to 0.3 percentage points in 2025 and 2026 before declining. Such investment grows by an average of 6.4 percent in those years as falling interest rates, pent-up demand, recent increases in the population, and a limited supply of existing homes for sale boost demand for new homes.

Outlook for Unemployment and Wages

The unemployment rate rises through the end of 2026 and then declines gradually after 2032.

Wage growth continues to slow, falling to 2.9% at the end of 2035.

Unemployment

In CBO’s projections, the slowdown in economic growth raises the unemployment rate to 4.3 percent at the end of 2025 and 4.4 percent at the end of 2026. In later years, the unemployment rate declines gradually, reaching 4.3 percent at the end of 2035.

Percent

Wages

Weaker demand for labor and falling inflation slow the growth of nominal wages over the next year. Wage growth declines gradually after 2025 but remains above the rate it averaged from 2015 to 2019—before the coronavirus pandemic—through 2035.

Percent

Outlook for Inflation and Interest Rates

Inflation slows in 2025 and settles at 2% or less after 2026.

After 2025, short-term interest rates remain below 10-year rates, reflecting their typical relationship.

Overall Inflation and Core Inflation

CBO expects the growth of overall prices to slow further in 2025, to a rate close to the Federal Reserve’s long-run goal of 2 percent. In CBO’s projections, inflation as measured by the PCE price index (the Federal Reserve’s preferred measure) falls from 2.5 percent in 2024 to 2.2 percent in 2025, reflecting moderating demand for labor and slower growth in housing costs. Inflation then declines more gradually, reaching 2.1 percent in 2026. From 2027 to 2035, it averages 2.0 percent per year.

Percent

‌Interest Rates

The Federal Reserve continues to lower the federal funds rate, which falls to 3.7 percent in the fourth quarter of 2025 and 3.4 percent in the fourth quarter of 2026. The 10-year rate declines less in those years. From 2027 to 2035, both short- and long-term interest rates decline slightly. (For details about the entire forecast and changes to it, see Appendix C.)

Percen

NOTES:

Simply adding up the estimates for specific tax expenditures does not account for the interactions that may occur among those tax provisions. For instance, the total tax expenditure for all itemized deductions would be smaller than the sum of the separate tax expenditures for each deduction. The reason is that all taxpayers would claim the standard deduction if there were no itemized deductions; but if only one or a few itemized deductions were removed, many taxpayers would still choose to itemize. The progressive structure of the tax brackets (meaning that higher rates apply to higher income) ensures that the opposite would be the case with income exclusions. In other words, the tax expenditure for all exclusions considered together would be greater than the sum of the separate tax expenditures for each exclusion. In 2025, those and other factors are expected to be approximately offsetting, so the total amount of tax expenditures is projected to roughly equal the sum of the individual tax expenditures.

Estimates of tax expenditures measure the difference between households’ and businesses’ tax liability under current law and the tax liability they would have incurred if the provisions generating those tax expenditures were repealed and taxpayers’ behavior was unchanged. Such estimates do not represent the amount of revenues that would be raised if those provisions were eliminated, because the changes in incentives that would result from eliminating those provisions would lead households and businesses to modify their behavior in ways that would lessen the effect on revenues.