The Federal Budget
The deficit totals $1.6 trillion in fiscal year 2024, grows to $1.8 trillion in 2025, and then returns to $1.6 trillion by 2027. Thereafter, deficits steadily mount, reaching $2.6 trillion in 2034. Measured in relation to gross domestic product (GDP), the deficit amounts to 5.6 percent in 2024, grows to 6.1 percent in 2025, and then shrinks to 5.2 percent in 2027 and 2028. After 2028, deficits climb as a percentage of GDP, returning to 6.1 percent in 2034. Since the Great Depression, deficits have exceeded that level only during and shortly after World War II, the 2007–2009 financial crisis, and the coronavirus pandemic.
Debt held by the public increases from 99 percent of GDP at the end of 2024 to 116 percent of GDP—the highest level ever recorded—by the end of 2034. After 2034, debt would continue to grow if current laws generally remained unchanged.
Outlays in 2024 amount to 23.1 percent of GDP and stay close to that level through 2028. After 2028, growth in spending on programs for elderly people and rising net interest costs drive up outlays, which reach 24.1 percent of GDP by 2034.
Revenues amount to 17.5 percent of GDP in 2024, decline to 17.1 percent in 2025, and then climb to 17.9 percent of GDP by 2027 after certain provisions of the 2017 tax act expire. Revenues remain near that level through 2034.
Changes in CBO’s Budget Projections Since May 2023
The deficit for 2024 is $0.1 trillion smaller than CBO projected in May 2023, and the cumulative deficit for the 2024–2033 period is $1.4 trillion (or 7 percent) smaller.
The biggest factor contributing to smaller projected deficits is a reduction in discretionary spending stemming from the Fiscal Responsibility Act and the Further Continuing Appropriations and Other Extensions Act, 2024.
The U.S. Economy
Economic growth slows in 2024 as unemployment increases, partly as a result of tight monetary policy. Real (inflation-adjusted) GDP growth accelerates in 2025 after the Federal Reserve responds to weaker economic conditions in 2024 by lowering interest rates.
Interest rates rose in 2023 as the federal funds rate increased to its highest level since 2001. In CBO’s projections, that rate begins to decline in the second quarter of calendar year 2024. Interest rates on 10-year Treasury notes rise in 2024 and then fall through 2026.
Inflation (as measured by the price index for personal consumption expenditures) slowed markedly in 2023. In CBO’s projections, it slows further in 2024—to a rate roughly in line with the Federal Reserve’s long-run goal of 2 percent—and then ticks up in 2025, before declining slightly.
Changes in CBO’s Economic Projections Since February 2023
Growth of real GDP is weaker through 2026, similar in 2027, and slightly stronger afterward.
Interest rates are generally higher. From 2024 to 2027, those higher rates mostly reflect the effects of stronger-than-expected economic growth in 2023. In later years, higher rates are driven by more capital income and less private saving.
The labor force is larger because net immigration, which began increasing in 2022, remains elevated through 2026.
CBO’s baseline budget and economic projections reflect the assumption that current laws governing taxes and spending will generally remain unchanged. Deficits and outlays have been adjusted to exclude the effects of shifts that occur in the timing of certain payments when the fiscal year begins on a weekend. Without those adjustments, the deficit projected for 2024 is $1.5 trillion (or 5.3 percent of GDP).
Originally published at https://www.cbo.gov/publication/59710
