Summary
The Federal Budget
The deficit increases significantly in relation to gross domestic product (GDP) over the next 30 years, reaching 8.5 percent of GDP in 2054. That growth results from rising interest costs and large and sustained primary deficits, which exclude net outlays for interest. Primary deficits are especially large given the forecast of low unemployment rates; those deficits average 0.6 percentage points of GDP more over the next 30 years than they did over the past 50 years.
Debt held by the public, boosted by the large deficits, reaches its highest level ever in 2029 (measured as a percentage of GDP) and then continues to grow, reaching 166 percent of GDP in 2054 and remaining on track to increase thereafter. That mounting debt would slow economic growth, push up interest payments to foreign holders of U.S. debt, and pose significant risks to the fiscal and economic outlook; it could also cause lawmakers to feel more constrained in their policy choices.
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Outlays are large by historical standards, and they generally rise over the 2024–2054 period, reaching 27.3 percent of GDP in 2054. Rising interest costs and spending for the major health care programs, particularly Medicare, drive that growth.
Revenues, measured as a percentage of GDP, fluctuate over the next decade and rise thereafter, reaching 18.8 percent of GDP in 2054, as growth in income boosts receipts from the individual income tax.
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Changes in CBO’s Budget Projections Since June 2023
Measured as a percentage of GDP, the deficit is now projected to be 1.6 percentage points smaller in 2053 than it was in last year’s report, and federal debt is now projected to be 17 percentage points smaller.
A key factor contributing to smaller projected deficits is a reduction in discretionary spending stemming from the annual funding limits under the Fiscal Responsibility Act of 2023 and from the Further Continuing Appropriations and Other Extensions Act, 2024.
The U.S. Economy
Population growth, which has a significant effect on the economy, is slower over the next 30 years than it was over the past 30 years. Without immigration, the population would begin to shrink in 2040.
Economic growth is also slower over the next three decades than it was over the previous three decades. The decline in output growth is the result of slower growth of the labor force and slower accumulation of capital resulting from increased federal borrowing.
Inflation slows through 2026 to a rate that is consistent with the Federal Reserve’s long-term goal of 2 percent and then remains at rates that are consistent with that goal from 2026 to 2054.
Interest rates generally rise over the next three decades, largely as a result of projected increases in federal borrowing and in capital income as a share of total income.
Changes in CBO’s Economic Projections Since June 2023
On average, the economy is now expected to grow more rapidly over the next 30 years than the agency projected in June 2023. That increase stems from stronger growth of the potential labor force over the next 10 years, largely driven by increased net immigration, and faster capital accumulation over the next 30 years.
