A new forecast from the Congressional Budget Office (CBO) reveals the scale of the fiscal challenge that the second Trump administration has inherited from its predecessors, including Trump 1.0 and the Biden administration. Amid much talk about the problem, there is not yet an identifiable path for reversing the deterioration. Indeed, based on the policies surfaced to this point by the president and his allies, even more rapid borrowing looks more likely than sustained fiscal consolidation.

CBO’s new projection is similar to its June 2024 baseline. The June estimates predicted a total deficit of $22.1 trillion over the period 2025 to 2034. The new forecast expects it to be $21.1 trillion, or $1.0 trillion less. Total debt held by the public is now projected to reach 117.1 percent of GDP in 2034, slightly below the 122.4 percent forecast of last June. Stronger growth in 2024 is a principal reason the new baseline shows modest improvement relative to last year’s estimates.

This small increase in the projected size of the national economy does not alter the primary force driving budget totals, which is growth in the major entitlement programs. Over the period 2026 to 2035, total non-interest spending is $14.7 trillion above a freeze at the 2025 level, of which $12.6 trillion (or 86 percent) will go toward benefits paid by Social Security, Medicare, and Medicaid. The rest of the budget is essentially flat, or nearly so. Rising costs for the entitlements will push federal debt above 150 percent of GDP within the next 30 years.

Given this reality, the obvious place to start a course correction would be by restoring solvency to Social Security and Medicare, both of which face shortfalls in the coming two decades. Changes that kept these programs’ respective trust funds in the black (and affordable to taxpayers) on a permanent basis would eliminate the federal government’s primary budget deficits, which exclude interest payments on the debt, over the long-term. The remaining deficit could be reduced significantly with other spending reforms and tax hikes.

But that is not the Trump plan. The president campaigned again in 2024 on essentially leaving Social Security and Medicare alone despite their sizeable effects on long-term debt accumulation.

Instead, the administration and Congress appear to be focused on imposing tariffs on imported products, rolling back expensive initiatives from the prior administration (such as clean energy subsidies), making cost-saving changes to Medicaid and Affordable Care Act subsidies, and finding efficiencies in the discretionary budget. Even if pursued aggressively, there should be no expectation that these policies will be sufficient to offset the additional lost revenue from continuing the Trump tax cuts beyond 2025, much less pay for the new tax breaks the president is seeking or the higher defense spending that many experts believe is needed based on today’s global threats.

Regarding health care, various policies, such as disallowing state schemes that push more Medicaid costs onto the federal budget, would deliver substantial savings. But most of the ideas now under consideration would partially shift the burden of paying for health care from the federal budget to another party rather than reduce overall costs. Delivering deep savings on a sustainable basis for all purchasers will require a coherent theory of how to reduce costs without compromising quality. For instance, if the Trump administration believes in applying market principles to the health sector, it needs to design reforms which would allow consumers in all insurance settings to benefit from selecting lower-priced service providers. There is no indication yet that such plans are being developed in the administration or Congress.

The administration and its allies are energized by the expectation that Elon Musk and the new White House Department of Government Efficiency (DOGE) will be able to substantially reduce the costs of running federal departments and agencies by deploying more up-to-date information technology (IT) platforms. There is broad agreement that many of the government’s business processes are excessively bureaucratic and costly and can be modernized with better IT tools. But funding for these agencies comes mostly through the annual appropriations process, which is likely to redirect any savings from DOGE-related initiatives toward other congressional priorities rather than allow them to be used for deficit reduction.

The outlook for the federal budget is further clouded by narrow Republican majorities and mercurial presidential leadership. To approve budget savings on a partisan basis in Congress, the GOP will need to stay unified. That is always difficult but likely to be more so this year given the tendency of the president to gravitate toward politically safe targets, like taming the federal bureaucracy and curtailing foreign aid. While such changes could produce some savings, it will not be nearly enough to slow rapidly rising federal debt.