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Visualizing CBO’s Budget and Economic Outlook

Our nation’s fiscal trajectory is unsustainable, a reality underscored by the Congressional Budget Office’s (CBO) February 2024 report on the budget and economic outlook of the United States. Rising budget deficits, rapidly increasing debt, and significant interest payments on the debt pose threats to economic growth, policymakers’ ability to address domestic and global challenges, and the United States’s leadership in the world. CBO’s “baseline” projections are used each year to help inform policymakers and experts as they devise and debate ways to improve the nation’s fiscal outlook.

This blog highlights key takeaways from CBO’s report.

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The Budget Outlook

  • The deficit will hit $1.6 trillion this fiscal year (5.6% of GDP), a slight decrease from last year’s $1.7 trillion deficit.
  • Over the next decade (FY2025-2034), the annual deficit will increase by $786 billion (44%) to $2.6 trillion (6.1% of GDP).
  • As spending continues to outpace revenues, deficits will exceed $1.5 trillion (an average of 5.6% of GDP) in each of the next ten years. In comparison to May 2023’s budget outlook, deficits are projected to be a cumulative $1.4 trillion less over FY2024-2033. Contributing to this are:
    • A $2.6 trillion decrease in cumulative deficits due to legislative changes, namely the discretionary spending caps enacted under the Fiscal Responsibility Act (FRA) in June 2023; and
    • A $1.2 trillion increase in cumulative deficits from technical and economic changes, including the impact of corporate profits on tax revenues or changes in interest on net interest costs.
  • The gap between revenues and outlays is only expected to increase, laying the groundwork for rising deficits through FY2054.
  • Revenues will increase 2.3 percentage points, from 16.5% of GDP in FY2023 to 18.8% of GDP in FY2054. Spending increases will outpace revenue increases, going from 22.7% of GDP in FY2023 to 27.9% of GDP in FY2054 (a 5.2 percentage point jump).
  • Over the next three decades, deficits will steadily increase, from 6.3% of GDP in FY2023 to 9.1% of GDP in FY2054 (a 2.8 percentage point jump). 
  • Debt held by the public (the portion of the country’s total debt that is owed to individuals, businesses, and foreign governments) will be $28 trillion (99% of GDP) by the end of this fiscal year.
  • Debt is expected to grow considerably to reach $48 trillion (116% of GDP) by FY2034—a higher level of debt than at any time in the nation’s history.
  • Over the next three decades, debt will increase from 97% of GDP in FY2023 to 172% of GDP in FY2054 (a 75 percentage point jump).
  • CBO adjusted its projection of this year’s (FY2024) debt held by the public to be $509 billion higher than expected in last year’s baseline report.
  • While the debt is predicted to rise to $46 trillion in FY2033, that level is roughly $1 trillion lower than projected in last year’s baseline.
  • Net interest costs will increasingly crowd out other expenditures. Last year, net interest costs surpassed Medicaid spending, and they are projected to surpass defense spending this year and non-defense discretionary spending next year. 
  • From FY2025 to FY2034, interest payments will grow 6.5% annually. 
  • Overall, cumulative net interest expenses over the next ten years are projected to be over $1.1 trillion higher compared to last year’s CBO projections.
  • CBO also expects the Federal Reserve to begin decreasing the federal funds rate, which currently sits at its highest level in 22 years, in the second quarter of FY2024. Faster or more significant cuts to the federal funds rate could decrease net interest expense for the U.S. compared to current CBO projections, though net interest expense would still likely grow year to year due to the government’s rising debt load.
  • Defense spending will outpace non-defense spending in FY2026, driven largely by the limits on non-defense discretionary spending set under the FRA.
  • From FY2025 to FY2034, defense spending will grow by $189 billion (22%) and non-defense spending will increase by $94 billion (11%).
  • This year, Social Security and Medicare spending will grow by $104 billion (8%) and $65 billion (8%), respectively, largely due to an aging population and costs per beneficiary rising faster than GDP per capita.
  • Social Security spending will increase by $926 billion (60%) from FY2025 to FY2034.
  • Net Medicare spending will increase by $799 billion (85%) from FY2025 to FY2034.
  • CBO continues to project that Social Security’s Old-Age and Survivors Insurance Trust Fund will be depleted in 2033. Congressional action will be needed to preserve Social Security benefits for millions of Americans.
  • Revenues will reach $4.9 trillion (17.5% of GDP) in FY2024 and grow to $7.5 trillion (17.9% of GDP) by FY2034.
  • Over the next ten years, individual income taxes will grow $1.5 trillion (58%), payroll taxes will increase $731 billion (42%), corporate taxes will rise $57 billion (11%), and other taxes, including excise taxes and customs duties, will grow $238 billion (96%). These increases reflect the 2025 expiration of many tax provisions enacted under the 2017 Tax Cuts and Jobs Act (TCJA).
  • Payroll taxes came in lower for FY2023 than previously projected because the U.S. Treasury reclassified some individual receipts as payroll taxes. This change will not affect later years in the budget window, as payroll taxes are expected to grow $41 billion more over the next decade than CBO predicted last year.
  • Over the next ten years, CBO projects that both individual income taxes and corporate taxes will come in at lower levels than they expected in last year’s baseline.
  • Social Security, Medicare, and net interest spending are projected to make up larger shares of overall expenditures over the next decade, from a combined 51% in FY2025 to 58% in FY2034, crowding out discretionary spending programs.

The Economic Outlook

  • GDP growth will accelerate from 0.8% in the last quarter of 2023 to 1.7% in the last quarter of 2024.
  • GDP growth will then rise to 2.4% in the last quarter of 2025, largely due to the Federal Reserve lowering interest rates this year.
  • After 2024, GDP is expected to grow at a moderate pace, though at lower levels than CBO predicted in its last baseline, averaging 2% annually from 2025 through 2034. This shift is largely the result of consumer spending returning to pre-pandemic trends.
  • The unemployment rate is projected to be an average of 0.3 percentage points lower across all quarters of 2024 and 2025 than CBO’s baseline last year, largely reflecting changes in expected economic growth and the size and make-up of the labor force.

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