CBO Reveals Budget Forecast: Impact on Insurance Industry
The Congressional Budget Office (CBO) has unveiled its 10-year budget forecast, revealing significant challenges for the U.S. economy due to rising federal deficits. The report predicts increased national debt and growing interest expenses, largely driven by recent legislation and economic policies.
A major factor contributing to the expanding deficit is the Trump 2025 Reconciliation Act, also known as the One Big Beautiful Bill (OBBB). The CBO notes this act introduces various tax benefits, including exemptions for overtime and tip income, an enhanced Child Tax Credit, and the permanent extension of rate reductions from Trump’s earlier term. Combined with increased defense and homeland security spending, these measures are expected to elevate the deficit by $3.4 trillion through 2035.
The forecast outlines primary deficits, highlighting the gap between tax revenues and spending before interest is considered. This gap is critical as it necessitates increased borrowing, escalating the interest burden, and inflating the overall deficit. In 2025, for instance, federal government spending exceeded revenues by $805 billion, requiring borrowing to cover this shortfall and compounding future financial obligations.
Furthermore, the CBO points out that tariffs, initially aimed at mitigating fiscal pressures, fall short of expectations, especially after a Supreme Court decision reduced their scope. The agency estimates these policies will result in a net deficit increase of $1.4 trillion over nine years.
Looking forward, public debt is projected to inflate from $30.2 trillion in 2026 to $53.1 trillion by 2035, equating to 116% of GDP. The deficit is anticipated to rise, reaching 6.2% of GDP by 2035 from today’s 5.8%. Meanwhile, economic growth is expected to be modest, with projections indicating an annual rate of 1.8% from 2026 through 2035, influenced by factors like an aging workforce and stringent immigration policies.
Interest expenses on the national debt are expected to grow significantly, potentially surpassing costs for major government programs such as defense and Medicare. By 2036, these expenses may impose an additional financial burden equal to $15,700 per household annually.
The insurance industry should remain vigilant amidst these challenges. Economic dynamics like these could impact market stability, investment portfolios, and the broader business environment. This emphasizes the need for strategic planning and adjustment to an evolving fiscal landscape.