This afternoon, I will brief the press about the Congressional Budget Office’s new report, The Budget and Economic Outlook: 2024 to 2034. I will deliver the following remarks with accompanying slides.
Thank you for joining me this afternoon. In this briefing, I’ll talk first about the federal budget, and then I’ll discuss the economy.
In the projections we released today, the deficit grows from $1.6 trillion in 2024 to $2.6 trillion in 2034. Measured in relation to economic output, deficits during that period are about 50 percent larger than their historical average over the past 50 years.
Net interest costs are a major contributor to the deficit, and their growth is equal to about three-quarters of the increase in the deficit from 2024 to 2034. Initially, net interest costs are similar to the amounts of discretionary spending both for defense and for nondefense activities. By the end of the period, they are roughly one and a half times larger than each, at $1.6 trillion.
Also boosting deficits are two underlying trends: the aging of the population and growth in federal health care costs per beneficiary. Those trends put upward pressure on mandatory spending.
Measured in relation to economic output, federal debt held by the public rises from 99 percent in 2024 to 116 percent in 2034, surpassing its historical peak. Then it continues to rise, reaching 172 percent by 2054.
From 2024 to 2033, the deficit is about 7 percent smaller than we projected last year, primarily as a result of the Fiscal Responsibility Act of 2023 and subsequent continuing resolutions. Together, those laws reduce the growth of discretionary spending. Including the effects on debt service, legislative changes reduce deficits by $2.6 trillion over the next 10 years.
In our projections, the deficit is also smaller than it was last year because economic output is greater, partly as a result of more people working. The labor force in 2033 is larger by 5.2 million people, mostly because of higher net immigration. As a result of those changes in the labor force, we estimate that, from 2023 to 2034, GDP will be greater by about $7 trillion and revenues will be greater by about $1 trillion than they would have been otherwise. We are continuing to assess the implications of immigration for revenues and spending.
Two key factors partially offset that deficit reduction relative to last year’s projections. First, net interest costs rise as a result of higher interest rates. Second, the costs of energy-related tax provisions are much higher than the staff of the Joint Committee on Taxation originally projected. Those costs reflect new emissions standards, market developments, and actions taken by the Administration to implement the tax provisions.
(The deficit and spending numbers in this statement have been adjusted to exclude the effects of shifts that occur in the timing of certain payments when October 1, the first day of the fiscal year, falls on a weekend. Without those adjustments, the deficit for 2024 would be $1.5 trillion.)
Turning to our economic projections, the U.S. economy grew faster in 2023 than it did in 2022, even as inflation slowed. Economic growth is projected to slow in 2024 amid increased unemployment and lower inflation. CBO expects the Federal Reserve to respond by reducing interest rates, starting in the middle of the calendar year. In CBO’s projections, economic growth rebounds in 2025 and then moderates in later years.
Since February 2023, when CBO published its last full economic forecast, the agency has lowered its projections of economic growth and inflation (as measured by the PCE price index) for 2024. CBO also expects interest rates to be higher from 2024 to 2027 than it projected last year. After 2027, CBO’s current and previous economic forecasts for economic growth are generally similar.
Phillip L. Swagel is CBO’s Director.