Federal budget deficit to reach nearly $2 trillion this year, CBO projects

The nonpartisan Congressional Budget Office (CBO) on Tuesday released an update to its 10-year budget outlook that found the federal budget deficit will approach $2 trillion in the current fiscal year.

The CBO's latest estimate projects the budget deficit will reach $1.9 trillion in fiscal 2024, which would be the third largest in U.S. history and $200 billion larger than last year's deficit. The projected $1.9 trillion deficit would trail only the $3.1 trillion fiscal 2020 deficit and the $2.7 trillion fiscal 2021 deficit that were incurred during the peak of spending on pandemic-era relief programs.

In February, the CBO estimated that the fiscal 2024 deficit would be more than $1.5 trillion, but it revised that figure upward by $408 billion, or 27%, in the latest update in response to new government spending since its prior report. 

The agency explained that the increase was due to several factors, including $145 billion in additional student loan debt cancellation by the Biden administration and recalculation of loan balances; $70 billion due to costs associated with resolving bank failures in 2023 and 2024 that will eventually be almost entirely offset; and about $60 billion in newly enacted legislation that increased spending above its prior baseline, including funding for Ukraine, Israel and countries in the Indo-Pacific region.

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Annual budget deficits are expected to surge in the years ahead, surpassing the $2 trillion threshold with a projected deficit of nearly $2.2 trillion in 2030. Deficits would continue to rise in the following years, topping $2.8 trillion in 2033 and 2034 in the CBO's analysis.

The CBO projected that the debt held by the public relative to gross domestic product (GDP) — a metric used by economists to gauge the size of the national debt relative to the economy — would rise to 99% of GDP this year. That means the national debt held by the public would be essentially the same size as the U.S. economy.

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The debt held by the public is projected to rise from nearly $28.2 trillion this year to more than $50.6 trillion in 2034, according to the CBO's projections. 

That would push the share of debt held by the public to 122% of GDP a decade from now, according to the estimate. It would also set a new record for the highest public debt as a percentage of GDP, which currently stands at 106% of GDP in 1946 when the U.S. was demobilizing after the conclusion of World War II — a threshold the CBO projects the U.S. will exceed in 2027.

For comparison, the gross national debt, which consists of both the debt held by the public and Treasury securities held by government accounts like the Social Security trust funds, would reach $35 trillion by the end of fiscal 2024 and soar to $56.9 trillion in fiscal 2034, per the CBO's projection.

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Much of the increase in the size of annual budget deficits and the national debt is attributable to rising mandatory spending on programs like Social Security and Medicare because of America's aging population, in addition to the cost of servicing the national debt rising because of higher interest rates and the debt itself continuing to grow.

Social Security accounted for 4.4% of federal spending on average from 1974 to 2023, while Medicare and net interest expenses each averaged 2.1% over that period. By 2034, the CBO projects those figures will rise to 6% for Social Security, 4.2% for Medicare and 4.1% for interest expenses.

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"At nearly the size of the economy, the national debt is truly astounding," Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget, said in a statement.

"With debt growing out of control, we need leadership now more than ever. This should be domestic issue number one in the presidential campaign. It's time for Presidents Biden and Trump to put forward plans to fix our debt. And it's long past time for Congress to act," she added.