Effects of the Immigration Surge on the Federal Budget and the Economy

The number of people entering the United States has increased sharply in recent years. Most of the increase comes from a surge in people whom the Congressional Budget Office categorizes as other foreign nationals. Some of them have received permission to enter or remain in the country, and some have not; more detail on the composition of immigrants in that category is provided below. On the basis of pre-2020 trends, CBO would have expected the net immigration of people in that category to average around 200,000 per year. In the agency’s projections, the net immigration of other foreign nationals exceeds that rate by a total of 8.7 million people over the 2021–2026 period.

In this report, CBO describes how that 2021–2026 surge in immigration affects its baseline budget and economic projections for the 2024–2034 period. That is, this report looks at the incremental impact of the immigration surge and not at the effects of all people who immigrated in those years or who previously immigrated and were already residing in the United States. In addition, only the surge’s effects on federal revenues, mandatory spending, and interest on the debt are examined in detail. The report provides a broad assessment of possible effects on federal discretionary funding; it does not include estimates of the surge’s effects on state and local budgets.

To isolate the effects of the increase in immigration in its baseline budget projections and the economic forecast that underlies them, CBO constructed a counterfactual scenario in which that increase does not occur; instead, from 2021 to 2034, the net immigration of people in the other-foreign-national category totals 200,000 people per year (which, from 2027 on, is the same as in the baseline projections). The agency then created economic and budget projections for that counterfactual scenario and compared those outcomes with its economic forecast and baseline budget projections. The differences between outcomes under the two scenarios represent CBO’s estimates of the effects of the surge in immigration.

CBO’s estimates of the effects of the immigration surge on the federal budget and the economy are very uncertain. The agency will continue to evaluate new data and other information as it becomes available.

Budgetary Effects

The increase in immigration boosts federal revenues as well as mandatory spending and interest on the debt in CBO’s baseline projections, lowering deficits, on net, by $0.9 trillion over the 2024–2034 period. Some of the effects on the budget result from the increase in the number of people paying taxes and collecting federal benefits. Other budgetary effects stem from changes in the economy over that period that are brought on by the surge, including increases in interest rates and in the productivity of workers who are not part of the surge.

CBO estimates that the immigration surge will add $1.2 trillion in federal revenues over the 2024–2034 period. The annual increase in revenues grows over time and reaches $167 billion (or 2.2 percent of total revenues) in 2034 in the agency’s projections. Individual income taxes and payroll taxes paid by immigrants who are part of the surge are responsible for most of the effects on revenues. In addition, the surge is projected to boost economic activity and, in turn, tax revenues.

The immigration surge adds $0.3 trillion to outlays for federal mandatory programs and net spending for interest on the debt over the 2024–2034 period in CBO’s projections. Annual outlays for certain mandatory programs increase over time as more immigrants in the surge population and their children who are born in the United States receive benefits. In 2034, those benefits add $23 billion (or 0.4 percent) to total mandatory spending. In addition, the economywide effects of the surge boost annual spending by growing amounts that reach $27 billion in 2034. Most notably, spending for interest on the government’s debt increases, primarily because of the higher interest rates resulting from the surge in immigration. In total, projected outlays in 2034 are boosted by $50 billion because of the surge.

Those estimates do not include any effects on discretionary spending (which is controlled by appropriation acts), though CBO expects the immigration surge will put pressure on the budgets of many programs and activities funded through discretionary appropriations, including some administered or undertaken by the Department of Homeland Security and the Office of Refugee Resettlement (in the Department of Health and Human Services). Funding for certain discretionary activities related specifically to immigration totaled $37 billion in 2024—an increase of $1 billion from the 2019 amount after the effects of inflation are removed—and the Administration has requested additional funding for 2024.

In addition, the surge is likely to affect other discretionary programs whose operations are affected by the size of the population, including those that provide funding for elementary and secondary education, income support, and infrastructure. If discretionary funding for the broad budget categories that are likely to be affected by a larger population was increased in proportion to the increase in the population from the surge, those funding increases would total $24 billion in 2034 and $0.2 trillion over the 2024–2034 period, CBO estimates.

The reason CBO’s estimates do not include discretionary funding is that such funding will depend on future actions taken by lawmakers. Increasing funding for certain purposes could be accomplished by boosting total appropriations or by shifting resources from other areas.

The surge in immigration will also affect the budgets of states and localities; its impact will vary among jurisdictions. Research has generally found that increases in immigration raise state and local governments’ costs more than their revenues, and CBO expects that finding to hold in the case of the current immigration surge. The surge population shares some characteristics with the immigrant populations examined in the existing research studies but differs from them in other ways, and CBO has not fully analyzed the effects of the immigration surge on the budgets of state and local governments.

Economic Effects

Some of the projected budgetary effects of the immigration surge stem from broader changes in the economy that the surge is expected to bring about. In CBO’s projections, the surge boosts total nominal gross domestic product (GDP) by $1.3 trillion (or 3.2 percent) in 2034 and by $8.9 trillion over the 2024–2034 period. The surge increases the total amount of wages paid each year by a percentage that grows steadily over that period and reaches about 3 percent in 2034. Those additional wages are a major contributor to the boost in revenues because they are subject to both payroll and income taxes. In addition, two main factors resulting from the surge—faster growth of the labor force and greater demand for residential investment—boost the rate of return on capital and put upward pressure on interest rates. The increases in interest rates are a major contributor to the boost in federal spending.

In the labor market, wages for workers in the surge population start out below the wages of other people in the United States with similar levels of education, on average, and converge over time in CBO’s estimates. Through 2026, the average wage growth of people in the United States who are not part of the surge is slightly less than it would have been without the surge because the surge slows the growth of wages of people with 12 or fewer years of education. That pattern reverses in later years as the average wage growth of people who are not part of the surge increases slightly because of higher innovation-related productivity and because the increase in the number of less-educated workers boosts the demand for more-educated people to work with them.