By Ryan Boyle

Routine physical checkups are an important component of healthcare. A doctor can identify potential problems and coach the patient toward making healthier choices. 

The U.S. has just had a visit with a fiscal specialist, and the diagnosis is sobering. The Congressional Budget Office (CBO) released its first ten-year budget outlook incorporating last year’s “One Big Beautiful” reconciliation bill. The report sees annual deficits remaining near $2 trillion, or 6% of gross domestic product (GDP), in the years ahead. The national debt is on track to rise to 120% of GDP in 2036, from about 100% now.

The CBO makes as few assumptions as possible in their outlook. Future income tax rates are held steady; tariff revenues are assumed to peak in 2026, then decline gradually as imports are substituted. Paths for GDP growth, inflation and employment are all consistent with a stable economy. 

But the CBO could not discount today’s headwinds. The primary driver of rising deficits is mandatory entitlement spending for a growing cohort of retirees. Population growth was downgraded to reflect lower rates of immigration. Borrowing costs assume a long-run 10-year Treasury yield of 4.4%, and an overnight borrowing rate of 3.4%, very close to current rates.  As older, lower-cost bonds are retired, new debt will be more costly. An indebted nation paying higher interest rates will struggle to avoid a path of rising debt.

Few remedies remain to cut government spending.  For the full year 2025, federal government employment fell by 323,000 people, or over 10%.  The Department of Government Efficiency took novel approaches to cutting spending within the powers of the executive branch; further reductions will require acts of Congress.  Leadership may eventually have to consider raising tax revenue, but that difficult discussion will be deferred as long as possible.

After a stern lecture at the annual physical, it’s up to the patient to actually change behavior. Long-running habits can be curbed by building on small gains.  Establishing an appetite for small government is a step toward fiscal balance, but the recovery will not be easy.