Immigration’s Vital Role in Tackling Our Demographic Challenge

Population growth spurs increased consumer demand, stimulates investment, and generates ideas that accelerate innovation, but the Congressional Budget Office’s (CBO) Demographic Outlook: 2023 to 2053 forecasts that population growth will become ever more dependent on immigration as the U.S. population ages. CBO forecasts show that U.S. deaths will exceed births in 2042 as a result of an aging population. If we are to continue to see sustained economic growth and ensure a sufficient tax base to support those dependent on federal benefits into the future, policymakers must authorize greater levels of immigration.

Immigration is needed to drive population growth

The CBO nicely summarizes its population forecast in a graphic, reproduced below as Figure 1. The number of births, the number of deaths, and net immigration together determine population growth.

The forecast shows population growth of only 0.3% per year, on average, over the next 30 years. This is roughly one-third of the growth rate over the last 40 years (0.8%).

Figure 1: Population Growth and Its Underlying Factors

An aging U.S. population is the primary cause of the growth slowdown. The CBO’s forecast shows that the size of the population aged 65 or older is set to increase relative to the prime working age population (ages 25 to 64), from 34% of the prime age population in 2023 to 46% in 2053.

The increase in the older population is relevant to overall population growth for two main reasons: 1) those over 65 are less likely to have children than those who are younger, and 2) they are also more likely to die. The more people in the overall population that are in this older age bracket, the fewer new births and the greater annual deaths are likely. For this reason, an aging population contributes to population stagnation or even decline.

Indeed, while births exceeding deaths currently explains 0.1% of the 0.5% increase in the U.S. population year over year, the CBO’s analysis shows that, by 2042, the aging of the population results in deaths exceeding births. Population growth after that point is driven entirely by immigration.

The CBO expects net immigration to initially rise as the effects of the pandemic wane and economic conditions improve, before ultimately stabilizing. Overall, they project annual net immigration to the U.S. to average 1.1 million people per year over the 2023-2053 period, roughly in line with the post-recession and pre-pandemic period between 2010-2019 (average of 1.0 million people per year). Ultimately, as shown in Figure 1, the forecasted level of immigration isn’t sufficient to prevent a slowing of the population growth rate. The greater number of deaths than births reduces the population growth rate from 0.3% to 0.2% year over year by 2051.

Immigration is vital for the economy and to support an aging population

Population growth is an important driver of economic growth, making the prospect of population decline highly concerning. Some recent economic research has even argued that living standards might stagnate entirely in the absence of population growth. For this reason, policymakers should note the hugely important role immigration will play in forestalling population decline and its corresponding economic consequences.

Immigration also provides vital financial support for an aging population. The United States’ aging population necessitates significant funding requirements for federal programs such as Social Security and Medicare. But it also leaves the U.S. with a smaller share of younger individuals to pay taxes to support these programs, weakening their financial sustainability.

Immigration is a potent tool to sustain this funding. A recent white paper produced by the Cato Institute using the same basic model as a seminal 2017 National Academies study finds that, over the next 30 years, immigrants will generally pay more in taxes than they will consume in benefits for both federal and state budgets. This is particularly the case for those with greater levels of education.

Not only is the fiscal impact of immigrants positive—it is greater than that of native-born Americans, according to Cato. There are three primary reasons for this:

1. Immigrants are more likely to be of working age than native-born residents;
2. There are increasing levels of education among recent arrivals to the U.S.; and
3. Immigrants are less likely to be eligible for government benefits.

This supports an earlier analysis carried out by the Bipartisan Policy Center, showing that immigration provides a vital source of support for a country that has ever greater fiscal needs as its population ages.

Conclusion

The policy implications from the CBO’s Demographic Outlook are clear. An aging population and associated declining birth rates necessitate higher levels of immigration to ensure that the U.S. population continues to grow and drives the economy and that there is adequate tax revenue to provide older citizens the support they need.

Policymakers should take action now to forestall slower population growth by increasing immigration to enable sustained long-term economic progress.