The federal budget is headed for a world of pain in the coming decades, the Congressional Budget Office projected Wednesday, but said things are looking a little better because of the spending cuts the GOP pressured President Biden into making last year.
CBO’s long-term outlook shows spending, already larger than usual, will grow even more, powered by the government’s expansive promises of health care for seniors and people with disabilities. Meanwhile, tax revenue will remain steady, at about the historical average.
The result is persistent deficits and debt that will reach record levels by the end of the decade and keep growing.
Looking out over the next three decades, the CBO sees a worse economy, a stagnating population and rising interest rates.
For consumers battered by price increases, inflation will finally drop to 2%, which is considered the target goal, in 2026.
As grim as all of that is, the CBO said it’s a little better than the forecast delivered a year ago.
The big changes are immigration, which is giving the overall economy a labor injection, and last year’s debt deal, which saw the House GOP win some restraints on the growth of discretionary spending.
“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 CBO said in the new analysis.
Digging into the numbers, federal revenue will equal 17.5% of gross domestic product this year, rising to 18.8% by 2054. That’s higher than the average of the past 30 years, when government revenues were 17.2% of GDP.
The problem is that Uncle Sam is spending at an even faster clip.
Over the past 30 years, the government spent at 21% of GDP. That will hit 23.1% this year and rise to 27.3% by 2054.
The difference between revenue and spending is the annual deficit, which will be 5.6% of GDP this year and rise to 8.5% at the end of the 30-year budget window.
The accumulation of those deficits results in the debt held by the public. It stands at 99% of GDP this year and will rise to 116% in a decade, then 139% in 2044 and 166% at the end of the 30-year window. By contrast, it averaged just 58% the past 30 years.
The economy, which grew an average 2.5% a year the past three decades, will slump to less than 2% growth in real GDP terms over the coming decades.
It would be even worse but for the surge of immigrants pouring into the U.S. in recent years.
Deaths will outpace births by 2040, meaning the U.S. population would start to decline but for immigration.
That has spurred a new defense of the wave of illegal immigrants under Mr. Biden, with their fans saying they’re fundamental to the economy. Critics, though, point out that while the overall economy is larger, the average worker is less well off than without illegal immigration. That’s because while the size of the economic pie is larger, it’s being sliced into more pieces.