Today the Congressional Budget Office released An Update to the Budget and Economic Outlook: 2024 to 2034.
Budget Projections
In the projections we released today, the federal budget deficit is $1.9 trillion in fiscal year 2024. Adjusted to exclude the effects of shifts in the timing of certain payments, the deficit amounts to $2.0 trillion in 2024, equal to 7.0 percent of gross domestic product (GDP), and $2.8 trillion in 2034, or 6.9 percent of GDP. (The values of deficits and outlays in the next two paragraphs are also adjusted to exclude the effects of those timing shifts, which occur when October 1, the first day of the fiscal year, falls on a weekend.)
Deficits from 2024 to 2034, which total $24 trillion, are about 70 percent larger than their historical average over the past 50 years when measured in relation to economic output. Both net outlays for interest and primary deficits (which exclude those outlays) are large by historical standards.
Federal outlays total 24.2 percent of GDP in 2024 and reach 24.9 percent of GDP in 2034. The main reasons for that increase are growth in interest costs and greater spending on programs that benefit older people, including Medicare and Social Security. Spending on those benefits rises because of the aging of the population and growth in federal health care costs per beneficiary.
Revenues total 17.2 percent of GDP in 2024. They rise to 18.0 percent of GDP by 2027, in part because of the scheduled expiration of provisions of the 2017 tax act, and remain near that level through 2034.
Measured in relation to economic output, federal debt held by the public rises from 99 percent in 2024 to 122 percent in 2034, surpassing its historical peak. Then it continues to rise.
Changes in the Budget Projections
The deficit in 2024 is $0.4 trillion (or 27 percent) larger in our current projections than it was in our February 2024 projections. About 80 percent of the increase in the projected deficit for 2024 is driven by four factors that all boost projected outlays.
- A $145 billion increase in projected outlays for student loans stems mostly from revisions that the Administration made to the estimated subsidy costs of previously issued loans and from the Administration’s proposed rule to reduce many borrowers’ balances on student loans.
- Projected outlays for deposit insurance have increased by about $70 billion because the Federal Deposit Insurance Corporation is not recovering payments it made when resolving bank failures in 2023 and 2024 as quickly as we previously anticipated. (In our projections, that increase is almost entirely offset by deficit reductions in future years as those payments are recovered.)
- Newly enacted legislation increased projected discretionary outlays by $60 billion.
- Projected outlays for Medicaid have increased by about $50 billion, mainly because actual outlays thus far in 2024 have been higher than expected.
The cumulative deficit over the 2025–2034 period is larger by $2.1 trillion (or 10 percent). The largest contributor to the cumulative increase was the incorporation of recently enacted legislation into CBO’s baseline, which added $1.6 trillion to projected deficits. That legislation included emergency supplemental appropriations that provided $95 billion for aid to Ukraine, Israel, and countries in the Indo-Pacific region. By law, that funding continues in future years in CBO’s projections (with adjustments for inflation), boosting discretionary outlays by $0.9 trillion through 2034.
Economic Projections
Turning to our economic projections, I’ll focus here on the near-term forecast. Economic growth (adjusted to remove the effects of inflation) is projected to slow from 3.1 percent in calendar year 2023 to 2.0 percent in 2024 amid higher unemployment and lower inflation. In our projections, short-term interest rates change little in 2024 as the federal funds rate (the rate financial institutions charge each other for overnight loans) remains at its highest level since 2001. The rate of inflation is projected to be slightly lower in 2024 than it was in 2023 for three main reasons: Supply chains have largely recovered from the problems they faced during the coronavirus pandemic; a projected rise in unemployment in 2024 will put downward pressure on the growth of wages; and higher long-term interest rates in 2024 will put downward pressure on some types of prices, such as the prices of shelter services, motor vehicles, and home furnishings.
Since February 2024, when we published our most recent economic forecast, we have raised our projections of economic growth, inflation (as measured by the price index for personal consumption expenditures), and short-term interest rates for 2024 and lowered our projection of the unemployment rate.
The Immigration Surge
Our baseline projections incorporate a surge in recent years in the number of people entering the United States in CBO’s category of other foreign nationals, exceeding the roughly 200,000 people per year that we would expect from historical experience. In our estimates, from 2021 to 2026, the net immigration of people in that category is 8.7 million greater than it would have been if it had remained at its otherwise expected level. To analyze the budgetary and economic effects of that surge in immigration, we developed a counterfactual, or hypothetical, scenario in which net immigration of other foreign nationals totals 200,000 people per year from 2021 to 2034.
Comparing that scenario with our baseline projections indicates that the immigration surge is projected to increase the nation’s nominal GDP by a total of $8.9 trillion, or 2.4 percent, over the 2024–2034 period. The surge is also projected to cause interest rates to be roughly 0.1 percentage point higher in 2034 than they would be otherwise. Those increases in GDP and interest rates are key drivers of projected increases in federal revenues and spending related to the surge.
In our baseline budget projections, which account for the immigrants in the surge and their children, the increase in immigration lowers deficits by a net total of $0.9 trillion over the 2024–2034 period. Specifically, revenues will be higher by $1.2 trillion over that period, in our estimation, and spending for mandatory programs and net outlays for interest on the federal debt will be higher by a total of $0.3 trillion as a result of the immigration surge.
Phillip L. Swagel is CBO’s Director.
