The Congressional Budget Office (CBO) recently released their budget and economic outlook for the next 10 years. Their projections are concerning as they show the federal debt could rise from 101 percent of GDP to 120 percent of GDP in 2036. With a projected federal debt of $56.15 trillion by 2036, GDP will easily be overtaken by the growing debt.
However, this is predicated on GDP only growing at 1.8% annually for the next 10 years. The Committee to Unleash Prosperity estimates that if real GDP grows at 3% annually each year, the debt curve bends down; while a growth rate of 3.5% would eliminate the federal debt in 30 years. Although these also make some assumptions about the growth rate of the federal debt, it paints a much different picture of the U.S. economy.
In order for America to be in such a place as predicted by the CBO, spending would need to continue growing and GDP growth would have to completely stagnate. This seems highly unlikely as technology is growing rapidly, and real GDP has increased an average of 2.5% annually since 2015. This is an increase over the ten year annual average of 1.8% from 2005 to 2015. As the economy continues to grow, technology continues to advance, and policy supports free enterprise more, real GDP can continue increasing in the next ten years rather than remaining at 1.8% as CBO projects.
Although CBO recognizes real GDP may be higher in 2026, they attribute this partially to the effects of the 2025 reconciliation act (One Big, Beautiful Bill Act) noting that the growth will not continue in later years. The CBO does not have an optimistic view on the possibilities of higher GDP and greater labor force productivity. As technology advances and as employers find ways to make these advancements work for people rather than against them, the potential for economic progress only continues to grow.
With states testing regulations on new technologies, higher investment in information processing equipment and data centers, and more workplaces integrating artificial intelligence (AI) into work processes, the U.S. economy is benefiting from technology advancement because it can improve labor productivity and it directs money into investments that are more profitable and can have a higher return.
As Americans learn more quickly how to efficiently use AI and can take on more tasks as their workload changes, we should expect more innovations in different industries. Further, this allows freelancers to use their time more efficiently and find a niche market for their skills, services, or goods.
For continue strong growth rates, the federal government must allow workers to maximize the benefits of free enterprise and encourage businesses to innovate. It also requires fiscal restraint by not adding to the federal debt faster than GDP can grow. Finally, it requires each state to allow their residents to innovate, pursue work, and save and invest to grow their businesses.
The CBO projections may look bleak for the next 10 years of debt growth and GDP stagnation, but that does not have to be reality. Now is the time to invest in strong economic policy to enable growth in real GDP and less federal spending.