Congressional Budget Office Ups Federal Deficit Forecast

The Congressional Budget Office expects the U.S. federal deficit to rise more over the coming years than previously expected, a February release by the bipartisan agency shows. While a year ago, CBO analysts expected a deficit of $1.71 trillion for the current fiscal year of 2026, this has now been corrected upwards to $1.85 trillion. By FY2030, the federal deficit is expected to stand at an annual $2.2 trillion, up from a previous projection of $2.14 trillion.

The CBO describes the 2025 budget reconciliation act, also known as the One Big Beautiful Bill Act, and the Trump administration’s tariff regime as counteracting forces – the latter reducing the federal deficit and the former increasing it. However, deficit increases due to the 2025 budget were estimated at a larger $4.7 trillion for fiscal years 2026-2035, opposed to tariff-related deficit reductions standing at $3 trillion if continued for 10 more years. Additionally, the CBO sees Trump’s immigration actions as increasing deficits by a further $0.5 trillion.

Specifically, the CBO cites the extension of 2017 tax cuts as part of the reconciliation act as a reason why deficit projections grew. These terms keep tax rates and income subject to tax for individuals, some businesses and their investments low for years to come, reducing government revenues. CBO also mentions the act’s other provisions reducing federal spending on Medicaid, the Supplemental Nutrition Assistance Program and federal student loans, while increasing spending on defense, homeland security and immigration-related activities. Overall, however, the agency rates the legislation as deficit-increasing as tax cuts outweigh savings.

While tariffs, on the other hand, are deficit decreasing due to the expected fostering of domestic industries and federal revenue generated through tariffs themselves, the CBO nevertheless cautions against their effects on import-reliant industries, consumer prices, real investment and productivity. The One Big Beautiful Bill Act made most tax cuts permanent, but tariff levels are subject to more uncertainty through court challenges or trade deals the administration is pursuing, as the recent Supreme Court decision has underscored.

Policy changes that reduced net migration into the United States, finally, are rated as minimizing the county’s population, leading not only to a reduction of the tax base, but also the size of the economy, again feeding the federal deficit.

As a share of GDP, the federal deficit has actually been most recently expected to decrease not increase, as GDP has been growing faster than deficits. However, the latest changes have now slowed this development. While the federal deficit as a share of GDP was expected to decrease to 5.2 percent by 2027, this has been corrected upwards to 5.7 percent. The federal deficit was expected to see a momentary peak again at 5.7 percent in 2028, which is now projected to reach 6 percent.