The Budget and Economic Outlook - 2024 To 2034

The Budget and
Economic Outlook:
2024 to 2034
FEBRUARY | 2024
Projections at a Glance
The Federal Budget

Changes in CBO’s
The deficit totals $1.6 trillion in fiscal year 2024, grows to $1.8 trillion in 2025, and Budget Projections Since
then returns to $1.6 trillion by 2027. Thereafter, deficits steadily mount, reaching May 2023
$2.6 trillion in 2034. Measured in relation to gross domestic product (GDP), the deficit The deficit for 2024 is $0.1 trillion
amounts to 5.6 percent in 2024, grows to 6.1 percent in 2025, and then shrinks to smaller than CBO projected in
5.2 percent in 2027 and 2028. After 2028, deficits climb as a percentage of GDP, May 2023, and the cumulative
returning to 6.1 percent in 2034. Since the Great Depression, deficits have exceeded deficit for the 2024–2033 period
that level only during and shortly after World War II, the 2007–2009 financial crisis, is $1.4 trillion (or 7 percent)
and the coronavirus pandemic. smaller.
Debt held by the public increases from 99 percent of GDP at the end of 2024 to The biggest factor contributing
116 percent of GDP—the highest level ever recorded—by the end of 2034. After 2034, to smaller projected deficits is a
debt would continue to grow if current laws generally remained unchanged. reduction in discretionary spend-
ing stemming from the Fiscal
Outlays in 2024 amount to 23.1 percent of GDP and stay close to that level through Responsibility Act and the Further
2028. After 2028, growth in spending on programs for elderly people and rising net Continuing Appropriations and
interest costs drive up outlays, which reach 24.1 percent of GDP by 2034. Other Extensions Act, 2024.
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.
The U.S. Economy

Changes in CBO’s
Economic growth slows in 2024 as unemployment increases, partly as a result of Economic Projections Since
tight monetary policy. Real (inflation-adjusted) GDP growth accelerates in 2025 after February 2023
the Federal Reserve responds to weaker economic conditions in 2024 by lowering Growth of real GDP is weaker
interest rates. through 2026, similar in 2027,
and slightly stronger afterward.
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 Interest rates are generally higher.
calendar year 2024. Interest rates on 10-year Treasury notes rise in 2024 and then From 2024 to 2027, those higher
fall through 2026. rates mostly reflect the effects of
stronger-than-expected economic
Inflation (as measured by the price index for personal consumption expenditures) growth in 2023. In later years, higher
slowed markedly in 2023. In CBO’s projections, it slows further in 2024—to a rate rates are driven by more capital
roughly in line with the Federal Reserve’s long-run goal of 2 percent—and then ticks income and less private saving.
up in 2025, before declining slightly.
The labor force is larger because
net immigration, which began
CBO’s baseline budget and economic projections reflect the assumption that current laws
increasing in 2022, remains ele-
governing taxes and spending will generally remain unchanged. Deficits and outlays have vated through 2026.
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).
www.cbo.gov/publication/59710
By the Numbers
The Budget Outlook, by Fiscal Year
Percentage of GDP Billions of dollars
Average, Actual, Actual,
1974–2023 2023 2024 2025 2034 2023 2024 2025 2034
Revenues 17.3 16.5 17.5 17.1 17.9 4,439 4,935 4,996 7,474
Individual income taxes 8.0 8.1 8.8 8.6 9.5 2,176 2,469 2,520 3,973
Payroll taxes 6.0 6.0 5.9 5.9 5.9 1,614 1,663 1,734 2,466
Corporate income taxes 1.8 1.6 2.0 1.7 1.3 420 569 494 551
Other 1.5 0.8 0.8 0.8 1.2 229 234 247 485
Outlays 21.0 22.7 23.1 23.1 24.1 6,123 6,517 6,768 10,032
Mandatory 11.0 13.9 13.9 13.9 15.1 3,742 3,908 4,061 6,298
Social Security 4.4 5.0 5.2 5.3 5.9 1,348 1,453 1,545 2,471
Major health care programs 3.4 5.8 5.6 5.5 6.7 1,556 1,574 1,619 2,781
Medicare 2.1 3.1 3.2 3.2 4.2 832 896 940 1,740
Medicaid, CHIP, and marketplace subsidies 1.3 2.7 2.4 2.3 2.5 724 678 679 1,042
Other mandatory 3.2 3.1 3.1 3.1 2.5 838 881 897 1,046
Discretionary 8.0 6.4 6.2 6.0 5.1 1,722 1,739 1,756 2,106
Defense 4.2 3.0 2.9 2.9 2.5 805 822 845 1,034
Nondefense 3.7 3.4 3.3 3.1 2.6 917 917 911 1,071
Net interest 2.1 2.4 3.1 3.2 3.9 659 870 951 1,628
Total deficit (-) -3.7 -6.2 -5.6 -6.1 -6.1 -1,684 -1,582 -1,772 -2,557
Primary deficit (-) -1.6 -3.8 -2.5 -2.8 -2.2 -1,025 -712 -821 -929
Debt held by the public at the end of each period 48.3 97.3 99.0 101.7 116.0 26,240 27,897 29,749 48,300
See Chapter 1. When October 1 (the first day of the fiscal year) falls on a weekend, certain payments that would have ordinarily been made on that day are instead
made at the end of September and thus are shifted into the previous fiscal year. Outlays and deficits have been adjusted to remove the effects of those timing shifts.
The Economic Outlook, by Calendar Year

Percent
Annual average
Actual, 2027– 2029–
2023 2024 2025 2026 2028 2034
Change from fourth quarter to fourth quarter
Real (inflation-adjusted) GDP 3.1 1.5 2.2 2.2 2.1 1.9
Inflation
PCE price index 2.7 2.1 2.2 2.1 2.0 1.9
Consumer price index 3.2 2.5 2.5 2.2 2.2 2.2
Payroll employment (net monthly change, in thousands) 229 84 178 104 63 51
Annual average
Unemployment rate 3.6 4.2 4.4 4.3 4.4 4.5
Interest rates
Effective federal funds rate 5.0 5.1 4.1 3.3 2.9 2.9
3-month Treasury bills 5.1 4.9 3.8 3.1 2.7 2.8
10-year Treasury notes 4.0 4.6 4.6 3.9 3.8 4.1
Tax bases (percentage of GDP)
Wages and salaries 43.2 43.5 43.8 43.9 43.8 43.8
Domestic corporate profits 9.9 9.7 9.6 9.4 9.2 9.0
See Table 2-1 on page 45. Domestic corporate profits are estimated for 2023.
Contents
Executive Summary 1
Chapter 1: The Budget Outlook 9

Overview 9
Deficits 9
Debt 13
Outlays 16
Revenues 29
The Long-Term Outlook for the Budget 40
Uncertainty of Budget Projections 40
Chapter 2: The Economic Outlook 43

Overview 43
Recent Economic Developments 47
Projections of Gross Domestic Product and Its Components 48
Projections of the Labor Market 56
Projections of Inflation and Interest Rates 58
Projections of Income 61
Uncertainty About the Economic Outlook 62
Comparison With CBO’s February 2023 Economic Projections 64
Comparison With Other Economic Projections 70
Chapter 3: Changes in CBO’s Baseline Projections Since May 2023 75

Overview 75
Legislative Changes 76
Economic Changes 77
Technical Changes 82
List of Tables and Figures 90
About This Document 91
Boxes
1-1. How the Fiscal Responsibility Act Affects CBO’s Baseline Projections of Discretionary Funding 22
1-2. Why CBO’s Baseline Projections of Discretionary Funding for 2024 Differ From
Amounts in Its Cost Estimate for the Continuing Resolution 24
1-3. CBO’s Long-Term Budget Projections 40
2-1. Economic Effects of CBO’s Revised Population Projections 50
3-1. Technical Changes to CBO’s Baseline Projections to Account for Developments
Affecting Energy-Related Tax Provisions 86
Notes About This Report
The budget projections in this report include the effects of legislation enacted through January 3,
2024, and are based on the Congressional Budget Office’s economic projections. Those economic
projections reflect economic developments and information as of December 5, 2023, and are
available on CBO’s website (www.cbo.gov/data/budget-economic-data#4).
Unless this report indicates otherwise, all years referred to in describing the budget outlook are
federal fiscal years, which run from October 1 to September 30 and are designated by the calendar
year in which they end. Years referred to in describing the economic outlook are calendar years.
When October 1 falls on a weekend, certain payments that the government would have ordinarily
made on that day are instead made at the end of September and thus are shifted into the previous
fiscal year. Consequently, the number of payments in that previous fiscal year increases, and the
number in the present fiscal year decreases. Those shifts in the timing of payments affect outlays
and deficits (or surpluses) and thus are reflected in the agency’s baseline budget projections (see
Table 1-1). But timing shifts can complicate comparisons of annual outlays and deficits and distort cer-
tain budgetary trends, so in many cases, CBO presents adjusted baseline projections that treat the
payments as if they were not subject to the shifts (for examples, see Tables 1-2, 1-4, 1-6, and 1-9).
Unless this report indicates otherwise, historical data shown in the text, tables, and figures
describing the economic forecast reflect data available from the Bureau of Economic Analysis and
other sources in late January 2024. Those data contain values for the fourth quarter of 2023, which
were not available when CBO developed its current projections.
Numbers in the text, tables, and figures may not add up to totals because of rounding.
Some of the figures in this report use shaded vertical bars to indicate periods of recession.
(A recession extends from the peak of a business cycle to its trough.)
Previous editions of this report often included an appendix of historical budget data.
Those data and other supplemental data for this analysis are available on CBO’s website
(www.cbo.gov/publication/59710#data), as are a glossary of common budgetary and economic terms
(www.cbo.gov/publication/42904), a description of how CBO develops its baseline budget projec-
tions (www.cbo.gov/publication/58916), a description of how CBO prepares its economic forecast
(www.cbo.gov/publication/53537), and previous editions of this report (https://tinyurl.com/4dt4hshv).
Executive Summary
The Congressional Budget Office regularly publishes reports presenting its baseline projections of what the federal
budget and the economy would look like in the current year and over the next 10 years if laws governing taxes and
spending generally remained unchanged. This report is the latest in that series.
The Budget Outlook

Deficits
In CBO’s projections, the federal budget deficit grows from $1.6 trillion in fiscal year 2024 to
$2.6 trillion in 2034. Deficits also expand in relation to the size of the economy, from 5.6 percent
of gross domestic product (GDP) in 2024, when the collection of certain postponed tax pay-
ments temporarily boosts revenues, to 6.1 percent of GDP in 2025. In 2026 and 2027, reve-
nues increase faster than outlays, causing the deficit to shrink to 5.2 percent of GDP by 2027.
Thereafter, outlays rise faster than revenues. By 2034, the deficit returns to 6.1 percent of GDP— Projections
significantly larger than the 3.7 percent that deficits have averaged over the past 50 years.
for 2024
Debt
Debt held by the public rises each year in relation to the size of the economy, reaching
Budget deficit:
116 percent of GDP in 2034—an amount greater than at any point in the nation’s history.
From 2024 to 2034, increases in mandatory spending and interest costs outpace declines $1.6 trillion
in discretionary spending and growth in revenues and the economy, driving up debt. That
trend persists, pushing federal debt to 172 percent of GDP in 2054.
Debt held by
Outlays and Revenues the public:
Federal outlays in 2024 total $6.5 trillion, which amounts to 23.1 percent of GDP. They stay 99% of GDP
close to that level through 2028 and then increase, reaching 24.1 percent of GDP by 2034.
Growth in spending on programs that benefit elderly people and rising net interest costs
drive those increases. Revenues in 2024 total $4.9 trillion, or 17.5 percent of GDP. They Outlays:
reach 17.9 percent of GDP in 2027, in part because of the expiration of provisions of the $6.5 trillion
2017 tax act, and remain near that level through 2034.
Changes in CBO’s Budget Projections Revenues:

The deficit for 2024 is $0.1 trillion (or 4 percent) smaller in CBO’s current projections than it $4.9 trillion
was in the agency’s May 2023 projections, and the cumulative deficit over the 2024–2033
period is smaller by $1.4 trillion (or 7 percent). The biggest factor contributing to smaller
projected deficits over the 10-year period is a $2.3 trillion reduction in projected discretion-
ary outlays stemming from the combination of the Fiscal Responsibility Act and the Further
Continuing Appropriations and Other Extensions Act, 2024.
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).
2 THE BUDGET AND ECONOMIC OUTLOOK: 2024 TO 2034 February 2024
The Budget Outlook, by Fiscal Year

Percentage of GDP Billions of dollars
Average, Actual, Actual,
1974–2023 2023 2024 2025 2034 2023 2024 2025 2034
Revenues 17.3 16.5 17.5 17.1 17.9 4,439 4,935 4,996 7,474
Individual income taxes 8.0 8.1 8.8 8.6 9.5 2,176 2,469 2,520 3,973
Payroll taxes 6.0 6.0 5.9 5.9 5.9 1,614 1,663 1,734 2,466
Corporate income taxes 1.8 1.6 2.0 1.7 1.3 420 569 494 551
Other 1.5 0.8 0.8 0.8 1.2 229 234 247 485
Outlays 21.0 22.7 23.1 23.1 24.1 6,123 6,517 6,768 10,032
Mandatory 11.0 13.9 13.9 13.9 15.1 3,742 3,908 4,061 6,298
Social Security 4.4 5.0 5.2 5.3 5.9 1,348 1,453 1,545 2,471
Major health care programs 3.4 5.8 5.6 5.5 6.7 1,556 1,574 1,619 2,781
Medicare 2.1 3.1 3.2 3.2 4.2 832 896 940 1,740
Medicaid, CHIP, and marketplace subsidies 1.3 2.7 2.4 2.3 2.5 724 678 679 1,042
Other mandatory 3.2 3.1 3.1 3.1 2.5 838 881 897 1,046
Discretionary 8.0 6.4 6.2 6.0 5.1 1,722 1,739 1,756 2,106
Defense 4.2 3.0 2.9 2.9 2.5 805 822 845 1,034
Nondefense 3.7 3.4 3.3 3.1 2.6 917 917 911 1,071
Net interest 2.1 2.4 3.1 3.2 3.9 659 870 951 1,628
Total deficit (-) -3.7 -6.2 -5.6 -6.1 -6.1 -1,684 -1,582 -1,772 -2,557
Primary deficit (-) -1.6 -3.8 -2.5 -2.8 -2.2 -1,025 -712 -821 -929
Debt held by the public at the end of each period 48.3 97.3 99.0 101.7 116.0 26,240 27,897 29,749 48,300
See Chapter 1. When October 1 (the first day of the fiscal year) falls on a weekend, certain payments that would have ordinarily been made on that day are instead
made at the end of September and thus are shifted into the previous fiscal year. Outlays and deficits have been adjusted to remove the effects of those timing shifts.
The Budget Outlook in Six Figures
Total Outlays and Percentage of GDP

Revenues 40 Projected
Measured as a percentage of
GDP, federal outlays exceed
their 50-year average each
30 Average outlays,
year from 2024 to 2034 in
1974 to 2023
CBO’s projections. Revenues (21.0) Outlays
24.1
fall below their 50-year
average in 2025 but hover 20
17.9
slightly above it thereafter.
See Figure 1-3 on page 27. Average revenues, Revenues
10 1974 to 2023
(17.3)
0
1974 1984 1994 2004 2014 2024 2034
EXECUTIVE SUMMARY THE BUDGET AND ECONOMIC OUTLOOK: 2024 TO 2034 3
Outlays, by Category
In CBO’s projections, rising spending for Social Security and Medicare boosts mandatory
outlays. Discretionary spending as a share of GDP falls to historic lows. And mounting debt
and higher interest rates cause net outlays for interest to increase. Starting next year, net
interest costs are greater in relation to GDP than at any point since at least 1940, the first
year for which the Office of Management and Budget reports such data.
See Figure 1-4 on page 28.
Percentage of GDP
25 Projected
20
Mandatory
15 15.1
10
Discretionary
5 5.1
3.9
Net interest
0
1974 1984 1994 2004 2014 2024 2034
Outlook for
2024–
2034
Revenues, by Category
Receipts from individual income taxes fell sharply as a percentage of GDP in 2023, from a Increases in
historic high in 2022. They declined in part because capital gains on sold assets were smaller
and because the Internal Revenue Service extended some tax payment deadlines. As those
mandatory
delayed payments are made, revenues rise in 2024. They rise again in 2026 and 2027, spending and
following the scheduled expiration of certain provisions of the 2017 tax act. rising net interest
See Figure 1-5 on page 33. costs push outlays
Percentage of GDP to $10.0 trillion,
12 Projected or 24.1% of GDP,
in 2034.
Individual income taxes
9.5
9
Revenues in 2034
total $7.5 trillion,
6 Payroll taxes 5.9 or 17.9% of GDP.
3 Corporate income taxes

1.3
1.2
Other
0
1974 1984 1994 2004 2014 2024 2034
Total Deficit, Net Percentage of GDP

Interest Outlays, and 15 Projected
Primary Deficit
In CBO’s projections, the total
budget deficit—the amount by
10
which outlays exceed revenues—
equals 6.1 percent of GDP in Total deficit
2034. Net interest payments
grow in relation to GDP, reaching 5
Net interest
3.9 percent of GDP in 2034. outlays
Primary deficits (which exclude
Primary deficit
net outlays for interest) increase 0
in 2025, decline over the next
few years, and then increase Primary surplus
again.
−5
See Figure 1-1 on page 12. 1974 1984 1994 2004 2014 2024 2034
Changes in CBO’s Baseline Projections Trillions of dollars

of the 10-Year Deficit Since May2024–2033
2023 deficit in CBO's May 2024–2033 deficit in CBO’s
20.3
The deficit for the 2024–2033 period is projected2023 baseline May 2023 baseline
to total $18.9 trillion, $1.4 trillion less than CBO
2024–2033 deficit in CBO's 2024–2033 deficit in CBO’s
projected in May 2023. The biggest factor February 2024 baseline 18.9
February 2024 baseline
contributing to smaller projected deficits is the
reduction in projected discretionary outlays
stemming from the Fiscal Responsibility Act and
Legislative changes -2.6
the Further Continuing Appropriations and Other
Extensions Act, 2024. Those decreases are Net increase in outlays from
0.8
partially offset by technical changes that reduce economic changes
projected revenues and increase projected Net increase in revenues from
-0.6
outlays for Medicare, Social Security, and clean economic changes
vehicle and energy-related tax credits. Technical changes 1.1
Federal Debt Held Percentage of GDP

by the Public 200 Projected
Federal debt held by the public
increases each year in CBO’s
projections, swelling to an 160
all-time record of 116 percent of
GDP in 2034. In the two
120
decades that follow, growing
deficits cause debt to soar to
172 percent of GDP by 2054. Debt
80
40
0
1900 1925 1950 1975 2000 2025 2050
The Economic Outlook

Economic Growth
In calendar year 2023, the U.S. economy grew faster than it did in 2022, even as inflation
slowed. Economic growth is projected to slow in 2024 amid increased unemployment and
Outlook for
lower inflation. CBO expects the Federal Reserve to respond by reducing interest rates, 2024–
starting in the middle of the year. In CBO’s projections, economic growth rebounds in 2025
and then moderates in later years. A surge in immigration that began in 2022 continues 2034
through 2026, expanding the labor force and increasing economic output.
Interest Rates The growth of real

Interest rates rose in 2023 as the federal funds rate (the rate financial institutions charge GDP slows to a rate
each other for overnight loans) increased to its highest level since 2001. In CBO’s projec- of 1.5% in 2024 as
tions, that rate begins to decline in the second quarter of 2024. Interest rates on 10-year
inflation continues
Treasury notes rise in 2024 and then fall through 2026.
to decline and
Inflation the federal funds
Inflation slowed markedly in 2023. In CBO’s projections, inflation as measured by the rate falls.
price index for personal consumption expenditures (PCE) slows further in 2024, to a rate
roughly in line with the Federal Reserve’s long-run goal of 2 percent. It then ticks up in After 2024, real
2025, before declining slightly.
GDP grows at a
Changes in CBO’s Economic Projections moderate pace.
Since February 2023, when CBO published its last full economic forecast, the agency has
lowered its projections of economic growth and inflation (as measured by the PCE price index)
for 2024. CBO also expects interest rates to be higher from 2024 to 2027 than it projected
last year. After 2027, CBO’s current and previous economic forecasts are generally similar.
The Economic Outlook, by Calendar Year

Percent
Annual average
Actual, 2027– 2029–
2023 2024 2025 2026 2028 2034
Real (inflation-adjusted) GDP 3.1 1.5 2.2 2.2 2.1 1.9
Inflation
PCE price index 2.7 2.1 2.2 2.1 2.0 1.9
Consumer price index 3.2 2.5 2.5 2.2 2.2 2.2
Payroll employment (net monthly change, in thousands) 229 84 178 104 63 51
Annual average
Interest rates
Effective federal funds rate 5.0 5.1 4.1 3.3 2.9 2.9
Domestic corporate profits 9.9 9.7 9.6 9.4 9.2 9.0
See Table 2-1 on page 45. Domestic corporate profits are estimated for 2023.
The Economic Outlook in Six Figures

Growth of Real GDP Percent
The growth of economic 6 Recession Projected
output, as measured by the
nation’s GDP, is projected to
slow in 2024 because of 4
weaker growth in consumer
spending and a decline in Real GDP growth
2
business investment in non
residential structures. Growth
of real (inflation-adjusted) GDP 0
is projected to increase in
2025 after the Federal Reserve
responds to weaker economic −2
conditions in 2024 by lowering
interest rates.
−4
See Figure 2-1 on page 44. 2002 2006 2010 2014 2018 2022 2026 2030 2034
Outlook for Consumer Spending on Goods and Services

2024– CBO expects consumer spending to continue shifting from goods to services as
people gradually resume their prepandemic patterns of consumption. By 2030, the
2034 share of consumer spending devoted to goods returns to its prepandemic trend of
a gradual decline, in CBO’s projections.
Real GDP growth
averages 2.2% Percent
38
annually from Recession Projected
2025 to 2028. 36
Share of consumer
Consumer 34 spending on goods
spending, which
32
shifted sharply Current projection
toward goods 30
and away from
28
services during January 2020
projection
the pandemic, 26
returns to
prepandemic 0
2002 2006 2010 2014 2018 2022 2026 2030 2034
patterns.
Unemployment
In CBO’s projections, the unemployment rate rises to 4.4 percent by the fourth quarter
of 2024, reflecting the slowdown in economic growth. In later years, the unemployment
rate ranges from 4.3 percent to 4.5 percent. Fluctuations in that rate are mainly attribut-
able to changes in economic growth and in the size and composition of the labor force.
Percent
10 Recession Projected
6
Unemployment rate
4
0
2002 2006 2010 2014 2018 2022 2026 2030 2034
The Labor Force Outlook for

In CBO’s current projections, the number of people who are working or actively
seeking employment continues to expand at a moderate pace through 2026. Higher
2024–
population growth in those years, mainly from increased immigration, more than
offsets a decline in labor force participation due to slowing demand for workers and
2034
the rising average age of the population. A large proportion of recent and projected
immigrants are expected to be 25 to 54 years old—adults in their prime working years. Unemployment
See the figure in Box 2-1 on page 50. rises to 4.4% by
Millions of people
the end of 2024
180
and then levels off.
Recession Projected
Current projection
The labor
170
force expands
February 2023 projection moderately over
160 the next few years.
Labor force
150
140
0
2000 2003 2006 2009 2012 2015 2018 2021 2024 2027 2030 2033
Overall Inflation and Core Inflation

In CBO’s projections, overall prices (as measured by the PCE price index) increase
less in 2024 and 2025 than they did last year. One key reason that inflation is
projected to be lower than in recent years is the easing of upward pressures on the
prices of food, energy, and other goods. Another key reason is weaker growth in
the prices of shelter services (which reflect the costs of both rental and
owner-occupied housing) because of elevated interest rates in 2024.
Outlook for
2024– Percent
6
2034
Recession Projected
Inflation falls 4
further over
the next few 3 Core inflation
Federal Reserve’s (excludes food and
years, dropping long-run goal energy prices)
to 2.0% or less 2
Overall inflation
after 2026.
1
Interest rates
also decline over 0
2002 2006 2010 2014 2018 2022 2026 2030 2034
the next few
years and then
stabilize. Interest Rates
CBO expects that in the second quarter of 2024, the Federal Reserve will respond
to slowing inflation and rising unemployment by lowering the federal funds rate,
which affects interest rates throughout the economy. Starting this year, the differ-
ence between the federal funds rate and the interest rate on 10-year Treasury notes
is projected to gradually return to its long-run average.
Percent
5
10-year Treasury notes
4
3
Federal funds rate
2
0
2002 2006 2010 2014 2018 2022 2026 2030 2034
Chapter 1: The Budget Outlook
Overview After 2034, deficits continue to increase in relation to

In the Congressional Budget Office’s baseline budget the size of the economy in CBO’s projections. Outlays
projections, the federal budget deficit is $1.5 trillion this increase largely because of rising interest costs and growth
year and generally increases over the next decade, reaching in spending for the major health care programs. Revenues
$2.6 trillion in 2034. (If adjusted to exclude the effects also rise over the period, but more slowly than outlays.
of shifts that occur in the timing of certain payments Such persistently large deficits cause federal debt held by
when the first day of the fiscal year falls on a weekend, the public, which has recently been at levels not reached
this year’s deficit would be $1.6 trillion.) The cumulative since the end of World War II, to rise even further.
deficit is projected to total $20.0 trillion over the 2025–
2034 period. Those projections, which were finalized CBO prepares its baseline budget projections in accor-
on January 3, 2024, incorporate the effects of legislation dance with provisions set forth in the Balanced Budget
enacted as of that date and therefore do not include and Emergency Deficit Control Act of 1985 (the Deficit
the effects of any subsequent legislation, including the Control Act, P.L. 99-177) and the Congressional Budget
Further Additional Continuing Appropriations and Other and Impoundment Control Act of 1974 (P.L. 93-344).
Extensions Act, 2024 (Public Law 118-35), which was Those laws require CBO to construct its baseline under
enacted on January 19, 2024.1 Incorporating the budget- the assumption that current laws governing revenues and
ary effects of subsequent legislation enacted to date would spending will generally stay the same. For discretionary
not significantly change the projections presented here. funding, CBO’s baseline incorporates limits on such funding
for 2024 and 2025, as specified in the FRA, and then reflects
• Measured relative to the size of the economy, the the assumption (as required by law) that funding will grow
deficit equals 5.3 percent of gross domestic product
with inflation once those caps expire. Discretionary funding
(GDP) in 2024. In CBO’s projections, annual
that is not constrained by the caps is generally assumed to
deficits generally increase over the 2025‒2034 period,
increase with inflation throughout the next decade.
averaging 5.7 percent of GDP per year, well above the
average deficit over the past 50 years.
CBO’s baseline budget projections are meant to provide a
• As a result of those deficits, federal debt held by the benchmark that policymakers can use to assess the poten-
public increases each year in CBO’s projections, rising tial effects of changes in policy. They are not intended to
from 99 percent of GDP this year to 116 percent provide a forecast of future budgetary outcomes, because
in 2034 (see Table 1-1). That would be the largest future legislative action could lead to markedly different
amount ever recorded in U.S. history. outcomes. Even if federal laws remained unaltered for the
next decade, actual budgetary outcomes would probably
The deficits in CBO’s current projections are gener- differ from CBO’s baseline projections, not only because
ally smaller than those in the agency’s previous baseline of unanticipated economic conditions but also because
projections for 2024 to 2033, which were published in of the many other factors that affect federal revenues and
May 2023. The budget shortfall for 2024 is now pro- outlays, such as administrative actions.
jected to be $63 billion smaller—and the cumulative
deficit for the 2024–2033 period, $1.4 trillion less—than Deficits
CBO projected last May. Those net decreases stem from The projected $1.5 trillion federal budget deficit for
the Fiscal Responsibility Act (FRA, P. L. 118-5) and the 2024 is $188 billion less than the shortfall recorded last
Further Continuing Appropriations and Other Extensions year. That deficit would be larger, and the decrease would
Act, 2024 (P.L. 118-22), as well as updates to the agency’s be smaller, if not for a shift in the timing of certain
economic forecast and other changes (see Chapter 3). payments in both 2024 and 2023. October 1, 2023 (the
first day of fiscal year 2024) fell on a weekend, so certain
1. Congressional Budget Office, cost estimate for H.R. 2872, payments that would ordinarily have been made on that
the Further Additional Continuing Appropriations and Other day were instead made in fiscal year 2023. Likewise,
Extensions Act, 2024 (January 17, 2024), www.cbo.gov/ October 1, 2022, fell on a weekend, which shifted
publication/59893.
Table 1-1 .
CBO’s Baseline Budget Projections, by Category

Total
Actual, 2025– 2025–
2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2029 2034
In billions of dollars
Revenues
Individual income taxes 2,176 2,469 2,520 2,789 3,031 3,124 3,251 3,381 3,511 3,634 3,793 3,973 14,715 33,007
Payroll taxes 1,614 1,663 1,734 1,812 1,884 1,960 2,039 2,121 2,205 2,291 2,379 2,466 9,430 20,892
Corporate income taxes 420 569 494 491 484 491 501 511 519 519 533 551 2,461 5,094
Othera 229 234 247 259 283 296 355 402 421 445 464 485 1,439 3,656
Total 4,439 4,935 4,996 5,351 5,683 5,870 6,147 6,414 6,656 6,890 7,168 7,474 28,046 62,649
On-budget 3,246 3,706 3,711 4,013 4,295 4,430 4,650 4,860 5,041 5,213 5,429 5,672 21,100 47,313
Off-budgetb 1,194 1,229 1,285 1,337 1,387 1,440 1,496 1,554 1,615 1,677 1,740 1,803 6,946 15,336
Outlays
Mandatory 3,753 3,838 4,061 4,246 4,448 4,743 4,807 5,153 5,407 5,682 6,131 6,320 22,306 50,999
Discretionary 1,722 1,734 1,756 1,791 1,825 1,866 1,893 1,937 1,975 2,016 2,066 2,106 9,131 19,231
Net interest 659 870 951 1,005 1,049 1,105 1,170 1,241 1,328 1,430 1,527 1,628 5,280 12,435
Total 6,135 6,442 6,768 7,042 7,323 7,715 7,870 8,331 8,710 9,128 9,724 10,054 36,718 82,665
On-budget 4,915 5,121 5,354 5,541 5,736 6,032 6,090 6,448 6,721 7,026 7,516 7,738 28,753 64,201
Off-budgetb 1,220 1,322 1,414 1,501 1,587 1,683 1,781 1,883 1,989 2,102 2,209 2,316 7,965 18,464
Total deficit (-)c -1,695 -1,507 -1,772 -1,692 -1,640 -1,844 -1,723 -1,917 -2,054 -2,238 -2,556 -2,579 -8,672 -20,016
On-budget -1,669 -1,414 -1,643 -1,528 -1,441 -1,602 -1,439 -1,588 -1,680 -1,813 -2,087 -2,066 -7,653 -16,888
Off-budgetb -26 -93 -129 -164 -200 -242 -284 -328 -374 -425 -469 -513 -1,019 -3,128
Primary deficit (-)c,d -1,036 -637 -821 -687 -591 -739 -554 -676 -726 -808 -1,029 -951 -3,392 -7,581
Debt held by the public 26,240 27,897 29,749 31,515 33,233 35,141 36,916 38,868 40,945 43,201 45,739 48,300 n.a. n.a.
Addendum:
GDP 26,974 28,177 29,256 30,504 31,756 33,043 34,375 35,746 37,157 38,609 40,106 41,646 158,933 352,197
As a percentage of GDP
Revenues
Individual income taxes 8.1 8.8 8.6 9.1 9.5 9.5 9.5 9.5 9.5 9.4 9.5 9.5 9.3 9.4
Payroll taxes 6.0 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9
Corporate income taxes 1.6 2.0 1.7 1.6 1.5 1.5 1.5 1.4 1.4 1.3 1.3 1.3 1.5 1.4
Othera 0.8 0.8 0.8 0.8 0.9 0.9 1.0 1.1 1.1 1.2 1.2 1.2 0.9 1.0
Total 16.5 17.5 17.1 17.5 17.9 17.8 17.9 17.9 17.9 17.8 17.9 17.9 17.6 17.8
On-budget 12.0 13.2 12.7 13.2 13.5 13.4 13.5 13.6 13.6 13.5 13.5 13.6 13.3 13.4
Off-budgetb 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.3 4.3 4.3 4.3 4.3 4.4 4.4
Outlays
Mandatory 13.9 13.6 13.9 13.9 14.0 14.4 14.0 14.4 14.6 14.7 15.3 15.2 14.0 14.5
Discretionary 6.4 6.2 6.0 5.9 5.7 5.6 5.5 5.4 5.3 5.2 5.2 5.1 5.7 5.5
Net interest 2.4 3.1 3.2 3.3 3.3 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.3 3.5
Total 22.7 22.9 23.1 23.1 23.1 23.3 22.9 23.3 23.4 23.6 24.2 24.1 23.1 23.5
On-budget 18.2 18.2 18.3 18.2 18.1 18.3 17.7 18.0 18.1 18.2 18.7 18.6 18.1 18.2
Off-budgetb 4.5 4.7 4.8 4.9 5.0 5.1 5.2 5.3 5.4 5.4 5.5 5.6 5.0 5.2
Total deficit (-)c -6.3 -5.3 -6.1 -5.5 -5.2 -5.6 -5.0 -5.4 -5.5 -5.8 -6.4 -6.2 -5.5 -5.7
On-budget -6.2 -5.0 -5.6 -5.0 -4.5 -4.8 -4.2 -4.4 -4.5 -4.7 -5.2 -5.0 -4.8 -4.8
Off-budgetb -0.1 -0.3 -0.4 -0.5 -0.6 -0.7 -0.8 -0.9 -1.0 -1.1 -1.2 -1.2 -0.6 -0.9
Primary deficit (-)c,d -3.8 -2.3 -2.8 -2.3 -1.9 -2.2 -1.6 -1.9 -2.0 -2.1 -2.6 -2.3 -2.1 -2.2
Debt held by the public 97.3 99.0 101.7 103.3 104.7 106.3 107.4 108.7 110.2 111.9 114.0 116.0 n.a. n.a.
Data source: Congressional Budget Office. See www.cbo.gov/publication/59710#data.
GDP = gross domestic product; n.a. = not applicable.
a. Consists of excise taxes, remittances from the Federal Reserve System, customs duties, estate and gift taxes, and miscellaneous fees and fines.
b. The revenues and outlays of the Social Security trust funds and the net cash flow of the Postal Service are classified as off-budget.
c. When outlays exceed revenues, the result is a deficit. Values in this row were calculated by subtracting outlays from revenues; thus, negative values indicate deficits.
d. Primary deficits exclude net outlays for interest.
CHAPTER 1: THE BUDGET OUTLOOK THE BUDGET AND ECONOMIC OUTLOOK: 2024 TO 2034 11
Table 1-2 .
CBO’s Baseline Projections of Outlays and Deficits,

Adjusted to Exclude Effects of Timing Shifts
Actual,
2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034
Adjustments to exclude effects of
timing shiftsa -11 75 0 0 0 -117 117 0 0 0 -154 -22
Outlays, adjusted for timing shifts
Mandatory 3,742 3,908 4,061 4,246 4,448 4,632 4,919 5,153 5,407 5,682 5,984 6,298
Discretionary 1,722 1,739 1,756 1,791 1,825 1,860 1,899 1,937 1,975 2,016 2,059 2,106
Net interest 659 870 951 1,005 1,049 1,105 1,170 1,241 1,328 1,430 1,527 1,628
Total 6,123 6,517 6,768 7,042 7,323 7,597 7,987 8,331 8,710 9,128 9,571 10,032
Total deficit (-), adjusted for timing shiftsb -1,684 -1,582 -1,772 -1,692 -1,640 -1,727 -1,841 -1,917 -2,054 -2,238 -2,402 -2,557
Primary deficit (-), adjusted for timing shifts
b,c
-1,025 -712 -821 -687 -591 -622 -671 -676 -726 -808 -875 -929
Outlays, adjusted for timing shifts
Mandatory 13.9 13.9 13.9 13.9 14.0 14.0 14.3 14.4 14.6 14.7 14.9 15.1
Discretionary 6.4 6.2 6.0 5.9 5.7 5.6 5.5 5.4 5.3 5.2 5.1 5.1
Net interest 2.4 3.1 3.2 3.3 3.3 3.3 3.4 3.5 3.6 3.7 3.8 3.9
Total 22.7 23.1 23.1 23.1 23.1 23.0 23.2 23.3 23.4 23.6 23.9 24.1
Total deficit (-), adjusted for timing shiftsb -6.2 -5.6 -6.1 -5.5 -5.2 -5.2 -5.4 -5.4 -5.5 -5.8 -6.0 -6.1
Primary deficit (-), adjusted for timing shifts
b,c
-3.8 -2.5 -2.8 -2.3 -1.9 -1.9 -2.0 -1.9 -2.0 -2.1 -2.2 -2.2
Addendum:
Baseline deficit (-), unadjusted
In billions of dollarsb -1,695 -1,507 -1,772 -1,692 -1,640 -1,844 -1,723 -1,917 -2,054 -2,238 -2,556 -2,579
As a percentage of GDPb -6.3 -5.3 -6.1 -5.5 -5.2 -5.6 -5.0 -5.4 -5.5 -5.8 -6.4 -6.2
Data sources: Congressional Budget Office; Department of the Treasury. See www.cbo.gov/publication/59710#data.
GDP = gross domestic product.
a. When October 1 (the first day of the fiscal year) falls on a weekend, certain payments that would have ordinarily been made on that day are instead made
at the end of September and thus are shifted into the previous fiscal year. Those shifts primarily affect mandatory outlays; discretionary outlays are also
affected, but to a much lesser degree. Net interest outlays are not affected.
b. When outlays exceed revenues, the result is a deficit. Values in this row were calculated by subtracting outlays from revenues; thus, negative values indicate
deficits.
c. Primary deficits exclude net outlays for interest.
payments due on that day into fiscal year 2022 (from fis- effects of timing shifts. That allows for a clearer analysis of
cal year 2023). If not for those shifts, this year’s projected the underlying annual trends in those budget categories.
deficit would be $1.6 trillion, $102 billion less than the
$1.7 trillion deficit in 2023 (see Table 1-2).2 Throughout The 2023 deficit was significantly affected by actions
the rest of this chapter, outlays and deficits (both projected related to the Administration’s plan to cancel outstanding
and historical amounts) reflect adjustments to exclude the student loans for many borrowers. Those actions resulted
in largely offsetting changes to the deficit in the past two
years. In September 2022, in keeping with the bud-
2. October 1 will fall on a weekend again in 2028, 2033, and 2034, getary procedures used to estimate the costs of federal
causing certain payments due on those days to be made at the credit programs, the Administration recorded outlays
end of September and thus to be recorded in the previous fiscal
of $379 billion to reflect its estimate of the long-term
year. Those timing shifts will noticeably boost outlays and the
deficit in fiscal years 2028 and 2033; they will reduce federal costs of debt cancellation, which increased the deficit in
outlays and deficits in fiscal year 2029. fiscal year 2022. Because of a June 2023 Supreme Court
Figure 1-1 .
Total Deficit, Net Interest Outlays, and Primary Deficit

Percentage of GDP
15 Projected
In CBO’s projections, the

total budget deficit—the
10
amount by which outlays
exceed revenues—equals
Total deficit
6.1 percent of GDP in 2034.
5 Net interest payments grow
Net interest in relation to GDP, reaching
outlays
Primary deficit Primary deficits increase
0
in 2025, decline over the
Primary surplus next few years, and then
increase again.
−5
1974 1984 1994 2004 2014 2024 2034
When October 1 (the first day of the fiscal year) falls on a weekend, certain payments that would have ordinarily been made on that day are instead made at the
end of September and thus are shifted into the previous fiscal year. All projections presented here have been adjusted to exclude the effects of those timing
shifts. Historical amounts have been adjusted as far back as the available data will allow.
Primary deficits or surpluses exclude net outlays for interest. When outlays exceed revenues, the result is a deficit. In this figure, deficits and surpluses were
calculated by subtracting revenues from outlays; thus, positive values indicate deficits, and negative values indicate surpluses. When outlays are subtracted from
revenues, as recorded in the federal budget and in the tables in this chapter, negative values indicate deficits, and positive values indicate surpluses.
decision, however, the cancellation plan was never imple- year’s—5.6 percent of GDP, down from 6.2 percent.
mented. As a result, in August 2023, the Administration (Without the reversal of the student loan cancellations,
recorded a $333 billion reduction in outlays for the the 2023 deficit would have been 7.5 percent of GDP.)
student loan program.3 That action reduced the fiscal Deficits in CBO’s baseline grow to 6.1 percent of GDP
year 2023 deficit. in 2025 and then decline over the next two years—falling
to 5.2 percent of GDP in 2027—primarily because of
If the reversal of the Administration’s plan for student the scheduled expiration at the end of calendar year 2025
loan cancellations was excluded from the calculation of of some provisions of the 2017 tax act (P.L. 115-97).
the deficit in 2023, the deficit that year would have been After 2028, deficits increase again, reaching 6.1 percent
larger—$2.0 trillion instead of $1.7 trillion—and the of GDP in 2034, the last year of the projection period
projected decline in deficits from 2023 to 2024 in CBO’s (see Figure 1-1). The cumulative deficit for the 2025–
baseline would be $435 billion rather than $102 billion. 2034 period is projected to total $19.8 trillion, or 5.6 per-
cent of GDP (excluding the effects of timing shifts).
Measured relative to the size of the economy, this
year’s deficit is estimated to be smaller than last The deficits that CBO projects are large by historical
standards. Over the past 50 years, the annual deficit has
averaged 3.7 percent of GDP. In CBO’s projections,
3. The outlay savings recorded by the Administration in 2023 were
smaller than the costs recorded in 2022, primarily because of deficits equal or exceed 5.2 percent of GDP in every year
a new income-driven repayment plan that the Administration from 2024 to 2034. Since at least 1930, deficits have not
finalized in 2023; that plan increased the cost of outstanding remained that large for more than five years in a row.
student loans.
Primary deficits—that is, deficits excluding net out- the government’s need to borrow from the public. Those
lays for interest—increase from 2.5 percent of GDP in factors—collectively referred to as other means of financ-
2024 to 2.8 percent in 2025 and then decrease, reaching—include changes in the government’s cash balances
ing 1.9 percent in 2027 in CBO’s projections. From and cash flows associated with federal credit programs,
2027 to 2034, primary deficits average 2.0 percent of such as those related to student loans and loans to small
GDP. In the 62 years from 1947 to 2008, such deficits businesses. (Those cash flows are not reflected in the
exceeded 2.0 percent of GDP only three times. In the budget deficit, which accounts only for the subsidy costs
past 15 years, though, they have exceeded that level of credit programs—that is, the estimated net lifetime
12 times—in part because of legislation that was enacted costs of the programs’ loans and loan guarantees.)5 As
in response to the 2007–2009 financial crisis and the a result of that additional borrowing, the increase in
coronavirus pandemic that began in early 2020. debt held by the public in 2024 will exceed the deficit
by about $150 billion, CBO projects. Over the 2025–
The primary deficits in CBO’s projections are especially 2034 period, the increase in federal debt is projected to
large given the relatively low unemployment rates that exceed the cumulative deficit by $387 billion.
the agency is forecasting. From 2025 to 2034—a period
in which the average unemployment rate is projected to The bulk of that additional borrowing stems from the
remain at or below 4.5 percent in each year—primary need to finance federal loan programs. The cash dis-
deficits in CBO’s baseline projections average 2.1 percent bursements needed to finance those programs each
of GDP. By way of historical contrast, from 1974 to year—for example, in the case of direct loans, the funds
2023 the unemployment rate was at or below 4.5 per- lent to borrowers minus the repayments of principal and
cent in nine years; in those years, the budget showed a payments of interest and other fees—are greater than the
primary deficit of 0.3 percent of GDP, on average. net subsidy costs that are recorded in the budget. The
Treasury needs to borrow funds each year to make up
Debt that difference.
The deficits projected in CBO’s baseline would boost
federal debt. That debt can be measured in various ways. Other Measures of Debt
The most common measure is debt held by the public, Four other measures are sometimes used in discussions of
which consists mostly of securities that the Treasury federal debt.
issues to raise cash to fund the federal government’s
activities and to pay off its maturing liabilities.4 Other • Debt held by the public minus financial assets
excludes the value of the government’s financial
measures are used for different purposes, such as to pro-
assets. That measure reflects the government’s overall
vide a more comprehensive picture of the government’s
financial condition by accounting for the value
financial condition.
of financial assets, such as student loans, that the
government has acquired while incurring that debt.
Debt Held by the Public
In CBO’s baseline projections, that measure generally
After accounting for all the federal government’s bor-
varies along with debt held by the public but is
rowing needs, CBO projects that debt held by the public
6 percent to 8 percent smaller.
would rise from $26.2 trillion at the end of 2023 to
$48.3 trillion at the end of 2034 (see Table 1-3). As • Debt held by the public minus financial assets and
a percentage of GDP, that debt is projected to reach debt held by the Federal Reserve excludes the value
116 percent at the end of 2034—about 19 percentage of financial assets held by the federal government as
points larger than it was at the end of 2023 and nearly well as Treasury securities held by the Federal Reserve.
two and a half times its average percentage over the past That measure represents the net debt held by entities
50 years (see Figure 1-2). outside the government, which better reflects the
government’s overall effect on credit markets. In
The net amount that the Treasury borrows each year by CBO’s baseline projections, that measure increases
issuing securities is determined primarily by the annual
budget deficit. However, several other factors also affect 5. For more details about other means of financing and about
federal debt more broadly, see Congressional Budget Office,
4. A small amount of debt held by the public is issued by other Federal Debt: A Primer (March 2020), www.cbo.gov/
agencies, mainly the Tennessee Valley Authority. publication/56165.
Table 1-3 .
CBO’s Baseline Projections of Federal Debt

Billions of dollars
Actual,
2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034
Debt held by the public at
the beginning of the year 24,252 26,240 27,897 29,749 31,515 33,233 35,141 36,916 38,868 40,945 43,201 45,739
Changes in debt held by the public

Resulting from the deficit 1,695 1,507 1,772 1,692 1,640 1,844 1,723 1,917 2,054 2,238 2,556 2,579
Resulting from other means of financinga 292 150 81 74 78 64 52 35 23 18 -18 -18
Total 1,987 1,657 1,852 1,766 1,718 1,908 1,775 1,952 2,077 2,256 2,538 2,561
Debt held by the public at

the end of the year
In billions of dollars 26,240 27,897 29,749 31,515 33,233 35,141 36,916 38,868 40,945 43,201 45,739 48,300
As a percentage of GDP 97.3 99.0 101.7 103.3 104.7 106.3 107.4 108.7 110.2 111.9 114.0 116.0
Addendum:
Federal financial assetsb 2,203 2,353 2,433 2,507 2,585 2,648 2,700 2,736 2,758 2,776 2,758 2,740
Debt minus financial assets

Federal Reserve’s holdings of

debt held by the public 4,958 4,381 4,414 4,969 5,577 6,187 6,718 7,227 7,741 8,264 8,781 9,304
Debt minus financial assets and

the Federal Reserve’s holdings
Gross federal debtc 32,988 34,825 36,775 38,624 40,243 42,021 43,702 45,460 47,294 49,255 51,718 54,386
Debt subject to limitd 33,070 34,906 36,853 38,701 40,319 42,098 43,778 45,535 47,369 49,330 51,791 54,459
Average interest rate on

debt held by the public (percent) 2.7 3.3 3.4 3.4 3.3 3.3 3.3 3.3 3.4 3.5 3.5 3.5
Data sources: Congressional Budget Office; Department of the Treasury. See www.cbo.gov/publication/59710#data.
a. Factors not included in budget totals that affect the government’s need to borrow from the public. Those factors include changes in the government’s cash
balances and cash flows associated with federal credit programs, such as those related to student loans. (The subsidy costs of those programs are reflected
in the budget deficit.)
b. The value of outstanding student loans and other credit transactions, cash balances, and various financial instruments.
c. Federal debt held by the public plus Treasury securities held by federal trust funds and other government accounts.
d. The amount of federal debt that is subject to the overall limit set in law. That measure of debt excludes debt issued by the Federal Financing Bank and
reflects certain other adjustments that are excluded from gross federal debt. Currently, the statutory limit on the issuance of new federal debt is suspended
through January 1, 2025. In the absence of any legislative action on the debt limit before the suspension ends, the amount of borrowing accumulated
during the suspension will be added to the previous debt limit of $31.4 trillion. The Deficit Control Act requires CBO to project spending, revenues,
and deficits independently of the debt limit. For more details, see Congressional Budget Office, Federal Debt and the Statutory Limit, February 2023
(February 2023), www.cbo.gov/publication/58906.
Figure 1-2 .
Federal Debt Held by the Public

Percentage of GDP
200 Projected
Federal debt held by

160 the public increases
each year in CBO’s
projections, swelling
120
to an all-time record
of 116 percent of GDP in
80 2034. In the two decades
that follow, growing
deficits are projected to
40 cause federal debt to soar
to 172 percent of GDP by
2054.
0
1900 1925 1950 1975 2000 2025 2050
from $19.1 trillion (or 71 percent of GDP) at the end • Debt subject to limit is the amount of debt that is
of 2023 to $36.3 trillion (or 87 percent of GDP) at subject to the statutory limit on federal borrowing,
the end of 2034. (The Federal Reserve’s holdings of which is often referred to as the debt ceiling. Such
Treasury securities, which totaled $5.0 trillion at the debt differs from gross federal debt mainly in that
end of 2023, are projected to fall to $4.4 trillion at it excludes debt issued by the Federal Financing
the end of 2024; thereafter, those holdings increase in Bank and includes certain other adjustments that are
CBO’s projections, rising to $9.3 trillion in 2034.) excluded from gross debt.6 Currently, the statutory
limit on the issuance of new federal debt is suspended
• Gross debt consists of debt held by the public and through January 1, 2025. In the absence of any
Treasury securities held by government accounts (for
legislative action to adjust the debt limit before
example, the Social Security trust funds). The debt
the suspension ends, the amount of borrowing
held by government accounts does not directly affect
accumulated during the suspension will be added to
the economy and has no net effect on the budget. It
the previous debt limit of $31.4 trillion. The Deficit
is not a meaningful benchmark for Treasury’s future
Control Act requires that CBO project spending,
obligations because it represents the cumulative
revenues, and deficits independently of the debt limit.
difference between a program’s past collections and
Thus, in CBO’s baseline projections, debt subject
expenditures. Although debt held by the public
to limit continues rising over the next decade and
increases by $22.1 trillion from the end of 2023
reaches $54.5 trillion in 2034.
to the end of 2034 in CBO’s baseline projections,
debt held by government accounts falls by about
$660 billion, reflecting declines in the balances of
many trust funds. As a result, gross federal debt is
projected to rise by $21.4 trillion over that period
and to total $54.4 trillion at the end of 2034. About 6. The Federal Financing Bank, a government corporation under
11 percent of that sum would be debt held by the general supervision of the Treasury, assists federal agencies in
government accounts. managing their borrowing and lending programs. It can issue up
to $15 billion of its own debt securities; that amount does not
count against the debt limit.
Outlays resources (known as sequestration) that are required under

In CBO’s baseline projections, outlays rise from current law for some mandatory programs.
22.7 percent of GDP in 2023 to 23.1 percent in 2024
and remain near that level through 2028. Thereafter, In 2024, CBO estimates, total mandatory outlays (net
outlays increase in each year as a share of the economy, of offsetting receipts) will amount to $3.9 trillion under
reaching 24.1 percent of GDP in 2034. Since 1974, current law, $166 billion (or 4 percent) more than they
outlays have averaged 21.0 percent of GDP. were in 2023 (see Table 1-4). Those outlays are projected
to amount to 13.9 percent of GDP this year—equal to
Outlays in 2024 last year’s percentage but still well above the 11.0 percent
Federal outlays are projected to total $6.5 trillion in of GDP they averaged from 1974 to 2023. If the budget-
2024—an increase of $0.4 trillion (or 6 percent) from ary effects of the Administration’s plan for student loan
the amount recorded in 2023. (If the budgetary effects cancellations were excluded from 2023 totals, projected
related to the Administration’s plan for student loan mandatory outlays this year would be $167 billion less
cancellations were excluded from last year’s total, the than they were in 2023.
projected increase in outlays would instead be 1 percent.)
In nominal terms, projected outlays rise this year in all Outlays for these programs decrease the most in 2024 in
three spending categories—mandatory, discretionary, CBO’s projections:
and net outlays for interest—but net outlays for interest • Deposit insurance. Outlays of the Federal Deposit
and mandatory spending make up 96 percent of the total Insurance Corporation (FDIC) are projected to fall
increase. by $117 billion this year as that agency continues to
resolve the bank failures that occurred in 2023. This
Mandatory Spending. This category includes outlays for year (and over the next few years), the FDIC expects
most federal benefit programs and for certain other pay- to recover much of what it spent to resolve those
ments to people, businesses, nonprofit institutions, and failures by liquidating the banks’ assets and collecting
state and local governments. Such outlays are generally higher premiums from FDIC-insured institutions.
governed by statutory criteria and are not normally con- CBO projects a reduced risk of bank failures in
strained by the annual appropriation process.7 Certain 2024 relative to last year’s activity.
types of payments that federal agencies receive from the
public and from other government agencies (such as • Medicaid. CBO’s updated baseline projections
premiums paid by Medicare beneficiaries and payments include a $58 billion (or 9 percent) drop in Medicaid
made by federal agencies to employees’ retirement plans) outlays from 2023 to 2024. Two factors account for
are classified as offsetting receipts and are accounted for most of the reduction. First, states are continuing
in the budget as reductions in mandatory spending. to reassess the eligibility of Medicaid enrollees who
remained in the program during the coronavirus
The Deficit Control Act requires CBO to construct its public health emergency.8 The Consolidated
baseline projections for most existing mandatory spending Appropriations Act, 2023 (P.L. 117-328), ended the
under the assumption that current laws generally remain continuous-enrollment requirement on March 31,
in place. Therefore, CBO’s baseline projections of man- 2023, and states began to review enrollees’ eligibility
datory spending reflect the estimated effects of changes and to disenroll those who no longer qualified. CBO
in the economy, growth in the number of beneficiaries of expects Medicaid enrollment to fall in 2024 as states
certain mandatory programs, and other factors related to continue that process. In addition, that law lowered
the costs of those programs. The projections also incor- the enhanced matching rate for federal reimbursement
porate a set of across-the-board reductions in budgetary to states for Medicaid services from an average of
5 percentage points in 2023 to 1.5 percentage points
7. Each year, some mandatory programs are modified by provisions

in annual appropriation acts. Such changes may increase or
decrease spending for the affected programs for one or more 8. Provisions of the Families First Coronavirus Response Act
years. In addition, spending for some mandatory programs (such (P.L. 116-127) required states to keep all Medicaid enrollees
as Medicaid and the Supplemental Nutrition Assistance Program) in the program until the coronavirus public health emergency
is considered mandatory, but benefits are paid from amounts ended. The declaration lifting that emergency took effect on
provided in appropriation acts. May 11, 2023.
in the first quarter of 2024 and to zero thereafter, that blocked implementation of the Administration’s
which decreases outlays for the program. plan to cancel outstanding student loans for many
borrowers. About one-third of the $333 billion
• Pension Benefit Guaranty Corporation. Net outlays reduction was offset by increased outlays recorded for
for the Pension Benefit Guaranty Corporation
the new income-driven repayment plan implemented
(PBGC) are projected to decline by $32 billion (or
by the Administration ($74 billion) and for other
80 percent) in 2024, to $8 billion. That decrease stems
modifications the Administration made to the terms
almost entirely from less spending for PBGC’s special
of outstanding loans and to changes in the underlying
financial assistance program, which makes onetime
assumptions about the costs of those loans ($52 billion).
payments to financially troubled multiemployer
Excluding those 2023 revisions to the costs of
pension plans that qualify for assistance.
outstanding loans, spending for higher education would
• Refundable tax credits. Outlays for refundable have increased by $5 billion from 2023 to 2024.
tax credits total $118 billion in 2024 in CBO’s
projections, $26 billion less than the amount • Social Security. Outlays for Social Security are
estimated to increase by $104 billion (or 8 percent)
recorded in 2023. Outlays for the coronavirus
in 2024, to $1.5 trillion. About $80 billion of that
refundable tax credits decline by $31 billion in
growth stems from an increase in average benefits,
2024.9 In the opposite direction, outlays for the
most of which was driven by the 8.7 percent cost-of-
earned income tax credit are projected to increase
living adjustment (COLA) in January 2023 and the
by $7 billion this year because of higher wages and
3.2 percent COLA in January 2024. A net increase
employment gains.
in the total number of beneficiaries accounts for the
• Supplemental Nutrition Assistance Program. remaining growth. Most of the projected increase
Outlays for the Supplemental Nutrition Assistance in outlays—$98 billion—is for the Old-Age and
Program (SNAP) are projected to fall by $23 billion Survivors Insurance portion of Social Security. The rest
(or 17 percent) in 2024, to $112 billion. That is for the Disability Insurance portion of the program.
decrease largely stems from the end of pandemic-
related benefits. Emergency allotments that were • Medicare. Outlays for Medicare (net of offsetting
receipts) reach $896 billion this year in CBO’s
provided to SNAP participants during the pandemic
projections, $65 billion (or 8 percent) more than in
ended in February 2023, and CBO projects that
2023. That increase is the net result of a $76 billion
spending for the Pandemic Electronic Benefit Transfer
increase in spending for benefits and a $12 billion
Program, which provided food benefits to households
increase in offsetting receipts (mainly from the
with children, will end in 2024. Additionally, CBO
collection of premiums). The growth in Medicare
projects that SNAP participation will decline by
benefit spending is mostly concentrated in larger
about 1 million people this year, to 41.1 million.
payments to Medicare Advantage plans (which allow
beneficiaries to receive their Medicare coverage through
The largest increases in estimated outlays for 2024 are for
private plans) and to Part D plans (which cover
these programs:
outpatient prescription drugs). Projected growth in
• Higher education. In CBO’s baseline, projected outlays payments for the traditional Medicare fee-for-service
for higher education increase by $213 billion this year, program is slower this year because of continued growth
rising to $29 billion from −$183 billion last year. In in Medicare Advantage enrollment: CBO expects total
2023, the Administration recorded a net reduction Medicare enrollment to increase by 1 million in 2024,
of $207 billion in the costs of outstanding loans— which reflects an increase of 2 million in enrollment
primarily reflecting the $333 billion reduction in in Medicare Advantage and a decrease of 1 million in
outlays that resulted from the Supreme Court’s decision enrollment in Medicare fee-for-service.
• Veterans’ programs. In CBO’s projections,
9. The coronavirus refundable tax credits are a group of tax credits mandatory outlays for veterans’ programs increase by
to help employers cover the costs of sick and family leave, $27 billion (or 16 percent) in 2024, to $195 billion.
employee retention, and continuation of health insurance for Most of that increase stems from growth in the
certain workers during 2020 and 2021. Employers may continue amount of disability compensation payments that
to claim those temporary tax credits on their amended tax
some veterans receive. (Average disability ratings
returns; CBO projects that those claims will decline over time.
Table 1-4 .
CBO’s Baseline Projections of Mandatory Outlays, Adjusted to Exclude Effects of Timing Shifts
Billions of dollars
Total
Actual, 2025– 2025–
2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2029 2034
Social Security
Old-Age and Survivors Insurance 1,198 1,296 1,381 1,466 1,550 1,642 1,734 1,829 1,927 2,026 2,127 2,230 7,772 17,911
Disability Insurance 150 156 164 175 184 190 197 204 211 219 228 240 910 2,011
Subtotal 1,348 1,453 1,545 1,640 1,734 1,832 1,930 2,032 2,137 2,245 2,355 2,471 8,682 19,922
Major health care programs
Medicarea,b 1,009 1,085 1,152 1,223 1,314 1,407 1,507 1,617 1,733 1,859 2,008 2,161 6,604 15,983
Medicaid 616 557 551 582 619 655 691 728 765 806 853 898 3,098 7,148
Premium tax credits and related
spendingc 91 103 110 89 91 95 99 103 107 114 121 129 482 1,056
Children’s Health Insurance
Program 18 18 18 19 19 20 20 21 21 22 16 15 96 191
Subtotal 1,733 1,763 1,831 1,912 2,043 2,177 2,317 2,469 2,626 2,801 2,999 3,203 10,280 24,378
Income security programs
Supplemental Nutrition Assistance
Program 135 112 110 109 112 112 113 114 115 119 121 123 556 1,148
Earned income, child, and other tax
creditsd 144 118 114 102 86 87 87 88 88 89 89 89 477 918
Supplemental Security Incomea 60 62 64 65 67 69 71 73 75 77 79 81 335 720
Unemployment compensation 30 40 45 45 47 49 51 53 55 56 58 60 238 520
Child nutrition 31 31 33 34 36 38 40 41 43 45 47 50 180 408
Family support and foster caree 49 45 35 36 37 37 38 38 38 39 39 40 183 378
Subtotal 448 407 402 392 385 392 400 406 414 426 434 441 1,970 4,091
Federal civilian and military retirement
Civilianf 122 128 133 138 142 145 149 153 156 163 167 171 707 1,516
Militarya 74 79 82 85 88 91 93 96 98 101 104 106 439 943
Subtotal 197 207 215 223 230 236 242 248 255 264 270 277 1,145 2,459
Veterans’ programs
Income securitya,g 148 172 184 196 209 222 233 243 254 265 276 288 1,044 2,370
Toxic exposures fundh 1 8 21 38 36 38 41 46 51 55 60 64 174 450
Othera,i 19 16 15 16 17 18 19 19 19 20 21 21 85 186
Subtotal 168 195 219 251 263 278 292 308 324 340 357 373 1,303 3,006
Other programs
Higher education -183 29 30 30 30 31 31 32 33 33 34 35 152 318
Agriculture 26 27 22 23 23 23 24 21 20 20 20 20 114 216
Deposit insurance 91 -26 -20 -12 -9 -61 -12 -13 -13 -14 -14 -15 -115 -183
MERHCF 12 12 12 13 14 14 15 16 16 17 18 18 69 154
Fannie Mae and Freddie Maci 0 0 3 4 6 6 6 6 6 6 10 10 25 64
Pension Benefit Guaranty
Corporation 40 8 -2 * -3 -4 -4 -4 -4 -5 -5 -5 -13 -37
Education Stabilization Fund 45 38 23 6 0 0 0 0 0 0 0 0 29 29
Other 162 152 159 157 151 150 144 133 127 102 97 91 761 1,311
Subtotal 192 240 226 220 211 160 204 191 184 160 159 155 1,022 1,871
Mandatory outlays, excluding
offsetting receipts 4,085 4,264 4,438 4,638 4,866 5,074 5,386 5,656 5,940 6,235 6,574 6,920 24,402 55,727
Continued
Table 1-4. Continued
CBO’s Baseline Projections of Mandatory Outlays, Adjusted to Exclude Effects of Timing Shifts
Billions of dollars
Total
Actual, 2025– 2025–
2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2029 2034
Offsetting receipts
Medicare -177 -189 -212 -221 -241 -261 -282 -307 -333 -361 -393 -422 -1,218 -3,032
Federal share of federal employees’
retirement
Civil service retirement and other -55 -57 -60 -63 -65 -68 -70 -72 -75 -77 -79 -80 -326 -708
Military retirement -27 -24 -22 -23 -23 -24 -24 -25 -26 -26 -27 -28 -116 -248
Social Security -22 -23 -23 -24 -25 -26 -26 -27 -28 -29 -30 -31 -125 -269
Subtotal -104 -104 -105 -109 -113 -117 -121 -125 -128 -132 -136 -138 -566 -1,225
Receipts related to natural resources -20 -18 -18 -18 -17 -17 -18 -18 -18 -18 -19 -19 -89 -180
MERHCF -10 -11 -12 -12 -13 -13 -14 -15 -15 -16 -17 -18 -64 -144
Fannie Mae and Freddie Macj -6 -6 0 0 0 0 0 0 0 0 0 0 0 0
Other -26 -28 -30 -31 -33 -34 -32 -38 -39 -26 -26 -26 -160 -315
Total -343 -356 -377 -392 -418 -443 -466 -502 -533 -553 -590 -622 -2,096 -4,897
Mandatory outlays, including
offsetting receipts 3,742 3,908 4,061 4,246 4,448 4,632 4,919 5,153 5,407 5,682 5,984 6,298 22,306 50,830
Effects that timing shifts have on

mandatory outlays in CBO’s baseline
projections
Medicare 7 -45 0 0 0 79 -79 0 0 0 110 16 n.a. n.a.
Supplemental Security Income * -5 0 0 0 5 -5 0 0 0 6 * n.a. n.a.
Military retirement 1 -6 0 0 0 7 -7 0 0 0 8 1 n.a. n.a.
Veterans’ income security 3 -13 0 0 0 19 -19 0 0 0 23 4 n.a. n.a.
Veterans’ other * -1 0 0 0 1 -1 0 0 0 1 * n.a. n.a.
Total 11 -70 0 0 0 112 -112 0 0 0 147 22 n.a. n.a.
Mandatory outlays in CBO’s baseline
projections 3,753 3,838 4,061 4,246 4,448 4,743 4,807 5,153 5,407 5,682 6,131 6,320 22,306 50,999
Addendum:
Outlays, net of offsetting receipts
Medicare 832 896 940 1,001 1,074 1,146 1,225 1,310 1,400 1,498 1,616 1,740 5,386 12,951
Major health care programs 1,556 1,574 1,619 1,691 1,802 1,915 2,035 2,162 2,294 2,440 2,606 2,781 9,062 21,346

Spending for benefit programs shown in this table generally excludes administrative costs, which are discretionary.
MERHCF = Department of Defense Medicare-Eligible Retiree Health Care Fund; n.a. = not applicable; * = between zero and $500 million.
a. When October 1 (the first day of the fiscal year) falls on a weekend, certain payments that would have ordinarily been made on that day are instead made at
the end of September and thus are shifted into the previous fiscal year. Outlays have been adjusted to remove the effects of those timing shifts.
b. Gross spending, excluding the effects of Medicare premiums and other offsetting receipts. (Net Medicare spending is shown in the addendum section.)
c. Spending to subsidize health insurance purchased through the marketplaces established under the Affordable Care Act and provided through the Basic
Health Program and spending to stabilize premiums for health insurance purchased by individuals and small employers.
d. Includes outlays for the American Opportunity Tax Credit and other credits.
e. Includes Temporary Assistance for Needy Families, Child Support Enforcement, Child Care Entitlement to States, and other programs that benefit children.
f. Includes benefits for retirement programs in the civil service, foreign service, and Coast Guard; benefits for smaller retirement programs; and annuitants’
health care benefits.
g. Includes veterans’ compensation, pensions, and life insurance programs.
h. Provides funding for health care, claims processing, and certain other incidental expenses related to providing care to veterans exposed to toxic substances.
i. Primarily the GI Bill and similar education benefits.
j. Cash payments from Fannie Mae and Freddie Mac to the Treasury are recorded as offsetting receipts in 2023 and 2024. Beginning in 2025, CBO’s estimates
reflect the net lifetime costs—that is, the subsidy costs adjusted for market risk—of the guarantees that those entities will issue and of the loans that they will
hold. CBO counts those costs as federal outlays in the year of issuance.
for veterans continue to rise, which results in larger discretionary funding for 2024 established by the Fiscal
benefit payments.) The number of new veterans Responsibility Act, the total amount of budget authority
receiving disability compensation is also expected and the resulting outlays have been adjusted to comply
to increase this year, in part from continued with those limits, or caps. (See Box 1-1 for details about
implementation of provisions of the Honoring our the FRA’s effects on CBO’s baseline projections of discre-
PACT Act of 2022 (P.L. 117-168). In addition, tionary spending.)
outlays for veterans’ benefits grow as a result of the
COLAs that went into effect in January 2023 and Some discretionary funding in CBO’s baseline is not
2024—8.7 percent and 3.2 percent, respectively. constrained by the limits set in the FRA. Current law
allows adjustments to be made to the caps for certain
Taken together, outlays for all other mandatory pro- funding designated as an emergency requirement or
grams—including federal retirement programs and subsi- (within statutory limits) for disaster relief activities, some
dies for health insurance—are estimated to rise, on net, efforts to reduce overpayments in benefit programs, and
by $13 billion (or 0.3 percent) in 2024. wildfire suppression. Other funding is exempt from the
caps altogether. Specifically, certain funding provided
Discretionary Spending. This category encompasses pursuant to the 21st Century Cures Act (P.L. 114-255),
spending for an array of federal activities that are funded funding derived from the Harbor Maintenance Trust
through or controlled by appropriations. Discretionary Fund, and emergency funding covered by section 103 of
spending includes most defense spending; spending the FRA does not count toward the caps.11 Funding that
for many nondefense activities, such as elementary and does not fall into any of those categories (and is therefore
secondary education, housing assistance, international constrained by the caps) is referred to as “base” funding.
affairs, and the administration of justice; and outlays for
certain transportation programs (though funding for In CBO’s baseline projections, discretionary budget
those programs is mandatory). In any year, some discre- authority for 2024 is $122 billion (or 7 percent) less
tionary outlays arise from budget authority provided in than the amount provided in 2023 (see Table 1-5).
the same year, and some arise from appropriations made (Budget authority does not include obligation limitations
in previous years.10 that govern discretionary spending for certain transpor-
tation programs whose spending authority is manda-
In CBO’s projections, discretionary funding and discre- tory; the limitations are the same under the continuing
tionary outlays each total $1.7 trillion this year. Relative to resolution this year as they were last year.)12 The amount
amounts provided last year, this year’s funding is lower, but of base funding in CBO’s baseline is $1.6 trillion in
outlays are projected to be $17 billion more. The agency 2024, generally reflecting the limits set in section 102
projects outlays to increase this year despite the reduction of the FRA.13 (Total base funding for 2024 in CBO’s
in budget authority primarily because of spending from baseline differs from the funding reported in CBO’s cost
budget authority provided in previous years. estimate for the continuing resolution by $37 billion.
CBO’s baseline projections of discretionary spending 11. Funding covered by section 103 of the FRA stems from division
reflect laws that were in place as of January 3, 2024. J of the Infrastructure Investment and Jobs Act, division B
The continuing resolution then in effect (the Further of the Bipartisan Safer Communities Act, and section 443 of
Continuing Appropriations and Other Extensions Act, division G of the Consolidated Appropriations Act, 2023 (which
permanently appropriates as an emergency requirement funds
2024) provided funding through January 19 for some
collected by the Hazardous Substance Superfund).
federal agencies and through February 2 for the rest.
CBO’s baseline incorporates the funding provided by 12. An obligation limitation is a restriction—typically included in
that continuing resolution on an annualized basis—that an appropriation act—on the amount, purpose, or period of
availability of spending authority. The limitation often affects
is, calculated as if the funding provided by the con- budget authority that has been provided in an authorization act.
tinuing resolution was in effect for the entire fiscal year. Although the budget authority for many transportation programs
Because the resulting amounts exceed the limits on is mandatory, the outlays from the obligation limitations for
those programs are considered discretionary.
10. Budget authority, or funding, is the authority provided by federal 13. Although some funding is not constrained by the caps, that
law to incur financial obligations that will result in immediate or funding could be reduced under statutory procedures used to
future outlays of federal government funds. enforce the caps.
Table 1-5 .
Changes in Discretionary Budget Authority From 2023 to 2024

Billions of dollars
Actual, Estimated, Percentage
2023a 2024 Change change
Defense
Base fundingb 858 850 -9 -1.0
Emergency funding not subject to the capsc * * 0 0
Emergency funding resulting in cap adjustmentsd 33 0 -33 -100.0
Other nonbase funding 0 0 0 n.a.
Subtotal 891 850 -42 -4.7
Nondefense
Base fundingb 789 750 -40 -5.0
Emergency funding not subject to the capsc 70 71 1 0.8
Other nonbase funding 28 28 -1 -2.4
Subtotal 957 876 -81 -8.5
Total discretionary budget authority

Base fundingb 1,648 1,599 -48 -2.9
Emergency funding not subject to the capsc 70 71 1 0.8
Other nonbase funding 28 28 -1 -2.4
Total 1,848 1,726 -122 -6.6

This table does not include obligation limitations for certain transportation programs.
FRA = Fiscal Responsibility Act; * = between zero and $500 million.
a. Shows amounts for each category of funding had the FRA been in place in 2023.
b. Consists of all discretionary appropriations except those that have been designated as an emergency requirement or for disaster assistance, certain program
integrity activities (which identify and reduce overpayments in some benefit programs), certain fire suppression operations, certain funding derived from
the Harbor Maintenance Trust Fund, and programs designated in the 21st Century Cures Act. Funding in this category is subject to the caps established by
sections 101 and 102 of the FRA, which were not in effect in 2023.
c. Consists almost entirely of funding designated as an emergency requirement provided by division J of the Infrastructure Investment and Jobs Act, division B
of the Bipartisan Safer Communities Act, and section 443 of division G of the Consolidated Appropriations Act, 2023. Section 103 of the FRA stipulated that
such funding does not count toward the caps.
d. Consists of funding, designated as an emergency requirement in keeping with section 251 of the Deficit Control Act, that changes the level of the caps.
For an explanation, see Box 1-2 on page 24.) Budget been provided for 2024. The reduction in base funding,
authority that is not constrained by the caps totals which stems from the cap on defense funding, accounts
$127 billion this year. More than half of that amount for the rest of the difference. Outlays for defense are pro-
was provided by the Infrastructure Investment and Jobs jected to be $822 billion in 2024, which is $17 billion
Act (P.L. 117-58) and the Bipartisan Safer Communities (or 2 percent) more than such outlays were in 2023.
Act (P.L. 117-159), both of which were enacted in 2022.
From 2023 to 2024, total funding for nondefense
Discretionary budget authority for defense totals discretionary programs decreases by $81 billion—or
$850 billion in 2024, a $42 billion—or 5 percent— 8 percent—in CBO’s projections, to $876 billion.
reduction from the amount provided in 2023. Last Nondefense base funding accounts for $40 billion of
year, $33 billion in funding designated as an emergency that reduction, driven largely by the cap on such fund-
requirement was provided, mostly for military assistance ing. In addition, funding designated as an emergency
to Ukraine. As of January 3, 2024, no such funding had requirement that results in an upward adjustment to the
Box 1-1 .
How the Fiscal Responsibility Act Affects

CBO’s Baseline Projections of Discretionary Funding
Two separate sections of the Fiscal Responsibility Act of by $10 billion and $41 billion, respectively.2 Because cost esti-
2023 (FRA, Public Law 118-5) established differing limits— mates for appropriation legislation—not the baseline—are used
also known as caps—on both defense discretionary funding when enforcing the caps, CBO’s baseline reflects downward
and nondefense discretionary funding for 2024 and 2025. adjustments of those amounts in 2024 (see the table). (Differ-
Which section of the law applies depends on the timing of the ences between funding projected in the baseline and funding
enactment of appropriations and the duration of funding.1 Caps reported in the cost estimate for the continuing resolution
established by section 101 of the FRA apply at the start of each cause total base funding—that is, funding constrained by the
fiscal year. But if a continuing resolution is still in effect on caps—in the baseline to exceed the caps.)3
January 1 of that same fiscal year, those caps will be replaced
For 2025, CBO’s baseline reflects the caps established under
by the limits established in section 102 of the FRA. (If full-year
section 101 of the FRA, which are $895 billion for defense
appropriations are enacted after January 1, the limits will revert
funding (an increase from the cap now in effect for 2024)
to the caps under section 101 of the law.)
and $711 billion for nondefense funding (a decrease from the
The caps on defense and nondefense funding limit most—but 2024 cap now in effect). Because the amount of base funding
not all—discretionary funding. Some funding designated for projected for defense in 2025 is below the cap, no additional
certain purposes causes an adjustment to the caps, and certain adjustments to projections of that funding in 2025 are required;
other funding is not subject to the caps at all. Because amounts base defense funding for 2025 and beyond is therefore
appropriated for those purposes are generally not constrained projected by carrying forward the base funding for 2024, with
by the caps, the Congressional Budget Office projects such adjustments for inflation. Thus, base defense funding in the
funding in accordance with the provisions of the Balanced baseline over the next several years is $10 billion to $11 billion
Budget and Emergency Deficit Control Act of 1985—that is, less than the amounts that would be projected without account-
by assuming that appropriations in future years are equal to ing for the caps.
the amounts provided for the current year with increases for
Projected base funding for nondefense activities exceeds the
inflation. (Funding for certain types of activities that result in
section 101 cap by $100 billion in 2025, in CBO’s estimation,
adjustments to the caps is subject to separate caps.)
so the agency has included reductions of that amount to bring
CBO’s baseline includes downward adjustments to projected such funding in the baseline into compliance with the 2025 cap.
discretionary funding to reflect the effects of the caps. For Thus, projected base funding in the baseline matches the cap in
2024, because a continuing resolution was in place on 2025—$711 billion—and the baseline incorporates the assump-
January 1, the baseline reflects the caps under section 102 tion that base nondefense funding will equal that amount (with
of the FRA, which are $850 billion for defense funding and increases for inflation) in each year from 2026 through 2034. If
$736 billion for nondefense funding. Those amounts are not for the caps, beginning in 2025, base nondefense funding
below the amounts CBO estimated in its cost estimate for the would exceed amounts projected in CBO’s baseline by more
continuing resolution underlying the projections in this report than $100 billion each year.
2. Congressional Budget Office, cost estimate for H.R. 6363, the

Further Continuing Appropriations and Other Extensions Act, 2024
1. For more information, see Congressional Budget Office, letter to the
(November 13, 2023), www.cbo.gov/publication/59755.
Honorable Jodey Arrington and the Honorable Brendan Boyle regarding
implementing the statutory limits on discretionary funding for fiscal year 3. For details about differences between CBO’s cost estimate for the continuing
2024 (January 4, 2024), www.cbo.gov/publication/59861. resolution and total funding in the agency’s baseline, see Box 1-2.
Continued
Box 1-1. Continued
How the Fiscal Responsibility Act Affects

CBO’s Baseline Projections of Discretionary Funding
Discretionary Funding Projected in CBO’s Baseline
Billions of dollars
2024 2025 2026 2027 2028 2029
Projected base funding without accounting for the caps
Defense 860 881 902 923 944 966
Nondefense 790 811 831 849 865 886
Total 1,650 1,692 1,733 1,773 1,809 1,851
Caps in section 102 of the Budget Control Act, as amended
(currently apply in 2024)
Defense 850 850 n.a. n.a. n.a. n.a.
Nondefense 736 736 n.a. n.a. n.a. n.a.
Total 1,586 1,586 n.a. n.a. n.a. n.a.
Caps in section 101 of the Budget Control Act, as amended
(currently apply in 2025)
Defense 886 895 n.a. n.a. n.a. n.a.
Nondefense 704 711 n.a. n.a. n.a. n.a.
Total 1,590 1,606 n.a. n.a. n.a. n.a.
Effects of the caps on CBO’s projections of base funding
Defense -10 -10 -10 -11 -11 -11
Nondefense -41 -100 -103 -105 -107 -109
Total -51 -110 -113 -116 -118 -121
Projected base funding after accounting for the caps
Defense 850 871 892 912 933 954
Nondefense 750 711 728 744 758 776
Total 1,599 1,582 1,620 1,657 1,691 1,731

Shaded cells reflect which sets of caps CBO used when constructing its baseline.
Base funding is funding that is not designated as an emergency requirement or for disaster relief, certain program integrity activities, certain fire
suppression operations, certain funding derived from the Harbor Maintenance Trust Fund, and certain programs designated in the 21st Century Cures Act.
The amount of budget authority in CBO’s baseline that is constrained by the caps does not match the level of the caps in 2024 because cost estimates
for appropriation legislation—not the baseline—are used when enforcing the caps. Therefore, the downward adjustments in CBO’s baseline reflect the
differences between the caps on base funding and the agency’s estimates for base funding provided by the continuing resolution in place on January 3,
2024. For more on why CBO’s cost estimate of that continuing resolution and funding in the agency’s baseline differ, see Box 1-2.
n.a. = not applicable.
Box 1-2 .
Why CBO’s Baseline Projections of Discretionary Funding for 2024 Differ From
Amounts in Its Cost Estimate for the Continuing Resolution
Discretionary funding provided for 2024 in the Congressional such changes made in appropriation acts are classified as
Budget Office’s current baseline is $35 billion less than the reductions or increases in discretionary spending in cost
amount shown in CBO’s cost estimate for the Further Continuing estimates. When CBO produces its baseline estimates, though,
Appropriations and Other Extensions Act (Public Law 118-22), those CHIMPs are reflected as reductions or increases in
referred to here as the continuing resolution.1 That difference mandatory spending, following the scorekeeping guidelines
occurs for several reasons (see the table). that govern their classification.3 On net, CHIMPs reduced CBO’s
estimate of discretionary funding in its cost estimate for the
Major Reasons for the Difference
continuing resolution by $15 billion. Shifting the effect of that
The largest driver of the difference between the amounts
reduction to CBO’s projections of mandatory spending boosts
projected in the baseline and CBO’s cost estimate for the
net discretionary funding by the same amount.
continuing resolution arises from the estimated effects of the
Fiscal Responsibility Act of 2023 (P.L. 118-5), which limits federal Other Reasons
funding for discretionary programs over the current and next Technical and economic updates to estimated components of
fiscal year. When the amounts provided by the continuing res- discretionary funding also account for part of the difference.
olution are annualized—that is, calculated as if the law was in For example, some fees that agencies collect (for mortgage
effect through all of 2024—funding provided for 2024 exceeds originations guaranteed by the Federal Housing Administration
those limits. As a result, CBO has adjusted the total amount of or aviation security fees collected by the Transportation Security
funding to reflect the expectation that the Administration would Administration, for instance) are estimated and are classified
implement statutory mechanisms to enforce the caps. In total, as offsets to discretionary budget authority. CBO’s estimate
those adjustments reduce discretionary funding shown in the for the continuing resolution used amounts projected in its
baseline by $51 billion in relation to the funding totals shown in May 2023 baseline, but updated estimates of that funding in
the cost estimate for the continuing resolution.2 CBO’s most recent baseline result in larger estimates of fees.
As a result, net discretionary budget authority in the baseline
Another reason for the difference stems from changes in
is $3 billion smaller than the amount in CBO’s estimate for the
mandatory programs enacted in appropriation acts, which are
continuing resolution.
known as CHIMPs. Following rules (known as scorekeeping
guidelines) that govern how CBO produces its cost estimates, In addition, current law requires CBO to exclude some
discretionary funding from its cost estimates. Specifically,
the 21st Century Cures Act (P.L. 114-255) and division B of the
1. Congressional Budget Office, cost estimate for H.R. 6363, the Further
Continuing Appropriations and Other Extensions Act, 2024 (November 13,
CARES Act (P.L. 116-136, as amended) require that certain fund-
2023), www.cbo.gov/publication/59755. ing provided to the National Institutes of Health and the Food
and Drug Administration or derived from the Harbor Mainte-
2. For more information about how the caps may affect discretionary
resources in 2024, see Congressional Budget Office, letter to the Honorable
nance Trust Fund be excluded from CBO’s cost estimates. That
Jodey Arrington and the Honorable Brendan Boyle regarding implementing funding is reflected in CBO’s baseline, however, accounting for
the statutory limits on discretionary funding for fiscal year 2024 (January 4, another $3 billion of the overall difference.
2024), www.cbo.gov/publication/59861. Although the adjustments in CBO’s
baseline affect only discretionary funding that is constrained by the caps
(“base funding” in the table), statutory enforcement procedures eventually 3. For more information about the guidelines, see Congressional Budget
would affect most funding not constrained by the caps. The total effect of Office, CBO Explains Budgetary Scorekeeping Guidelines (January 2021),
those procedures would still amount to approximately $51 billion. www.cbo.gov/publication/56507.
Continued
Box 1-2. Continued
Why CBO’s Baseline Projections of Discretionary Funding for 2024 Differ From
Amounts in Its Cost Estimate for the Continuing Resolution
Finally, when estimating the amount of funding provided by the the fees those agencies collect. (Those fees reduce total budget
continuing resolution, CBO was directed by the House and Senate authority.) Because CBO’s baseline does not reflect that assump-
Budget Committees to incorporate the assumption that certain tion, its discretionary budget authority is $0.1 billion larger than
funding provided to the federal power marketing administrations the amount in the cost estimate.
(federal agencies that generate power) would be fully offset by
Sources of Differences Between CBO’s Estimate of Discretionary Funding Provided for 2024 in
Appropriation Legislation and 2024 Discretionary Funding in the Baseline
Billions of dollars
Defense funding Nondefense funding
Total
Basea Nonbase Basea Nonbase funding
Amount of funding shown in cost estimate
for the continuing resolution 860 * 777 124 1,761
Differences
Effect of FRA capsb -10 0 -41 0 -51
CHIMPsc 0 0 16 * 15
Changes to estimated accountsd * 0 -2 * -3
Certain funding excluded from estimatee 0 0 0 3 3
Directed scoringf 0 0 * 0 *
Total difference -10 0 -27 2 -35
Funding in baseline 850 * 750 127 1,726

CHIMPs = changes to mandatory programs; FRA = Fiscal Responsibility Act; * = between -$500 million and $500 million.
a. Base funding is funding that is not designated as an emergency requirement or for disaster relief, certain program integrity activities, certain fire
suppression operations, certain funding derived from the Harbor Maintenance Trust Fund, and certain programs designated in the 21st Century Cures
Act.
b. The FRA (Public Law 118-5) established limits on discretionary budget authority. P.L. 118-22, the continuing resolution in effect when CBO completed its
analysis, provided funding at annualized levels in excess of the limits under section 102 of that law, which were in place at that time. CBO’s baseline
includes downward adjustments to funding to reflect the eventual effect of those limits. (See Box 1-1 on page 22 for more information.)
c. When appropriation acts make changes to mandatory programs, those changes are recorded as discretionary costs or savings pursuant to
Congressional scorekeeping guidelines. When those changes are reflected in CBO’s baseline, they appear as mandatory spending.
d. Budget authority for some discretionary accounts is estimated. For example, the total amount of fees collected by the Transportation Security
Administration (TSA) is not specified in appropriation acts because that amount is generally determined by the total number of air passengers. Current
law requires those collections to be credited against appropriations made to the TSA.
e. Current law requires certain funding derived from the Harbor Maintenance Trust Fund or for certain programs designated in the 21st Century Cures Act
be excluded from CBO’s cost estimates. That spending is ultimately reflected in the baseline.
f. The budget committees directed CBO, in its cost estimate for H.R. 6363, to assume that certain spending would be fully offset by collections not
reflected in the baseline.
cap is $41 billion less than it was last year.14 Despite the $6.8 trillion in 2025 to $10.0 trillion in 2034, for an
drop in funding, nondefense discretionary outlays in 2024 average annual increase of 4.5 percent.16 Measured
are projected to total the same amount as was recorded in in relation to the size of the economy, federal out-
2023—$917 billion—primarily because of spending from lays remain around 23 percent of GDP for several
budget authority provided in previous years. years before gradually rising, reaching 24.1 percent in
2034 (see Figure 1-3).
Net Interest Outlays. In the budget, net outlays for
interest consist of the government’s interest payments on Mandatory Spending. In CBO’s projections, nominal
federal debt, offset by interest income that the govern- outlays for mandatory programs (net of offsetting
ment receives. Net interest outlays are dominated by receipts) rise at an average annual rate of 5 percent over
the interest paid to holders of the debt that the Treasury the 2025–2034 period. In relation to GDP, those outlays
issues to the public. The Treasury also pays interest increase from 13.9 percent in 2025 to 15.1 percent in
on debt issued to trust funds and other government 2034. At that point, they would be about 4 percentage
accounts, but such payments are intragovernmental points higher than the average over the past 50 years
transactions that have no effect on the budget deficit. (see Figure 1-4). Two underlying trends, the aging of the
population and growth in federal health care costs per
Net outlays for interest have risen by more than 35 per- beneficiary, put upward pressure on mandatory outlays.
cent in each of the past two years and are projected to
increase by 32 percent this year. In CBO’s projections, The aging of the population causes the number of benefi-
those outlays rise from $659 billion in 2023 to $870 bil- ciaries of Social Security and Medicare to grow faster than
lion in 2024, surpassing discretionary outlays for defense the overall population, and federal costs per beneficiary for
this year. Relative to the size of the economy, net outlays the major health care programs continue to rise faster than
for interest rise from 2.4 percent in 2023 to 3.1 percent GDP per person. (Spending for the major health care pro-
in 2024—double the 1.5 percent of GDP recorded for grams consists of outlays for Medicare, Medicaid, and the
such outlays in 2021. Children’s Health Insurance Program, as well as premium
tax credits for health insurance purchased through the
The projected increase in 2024 occurs primarily because marketplaces established under the Affordable Care Act
the average interest rate that the Treasury pays on its and related spending. The premium tax credits subsidize
debt is higher this year and is expected to rise further as the purchase of health insurance.) As a result of those two
maturing securities are refinanced at rates that exceed trends, outlays for Social Security and Medicare increase in
those that prevailed when the securities were issued.15 relation to GDP from 2025 to 2034. Beyond the 10-year
For example, the interest rate on 10-year Treasury notes period, the effects of those trends on federal spending
averaged 3.0 percent in 2022 and 4.0 percent in 2023; persist, particularly for Medicare.
that rate averages 4.6 percent in 2024 in CBO’s current
economic forecast (see Chapter 2). Debt held by the
public (in nominal terms, rather than as a percentage of 16. CBO’s projections follow provisions in section 257 of the
GDP) is on track to increase by 6 percent from 2023 to Deficit Control Act, which requires CBO to project spending
2024, which also boosts net interest payments this year. for certain programs, including Social Security and Medicare,
under the assumption that they will be fully funded, and thus
able to make all scheduled payments, even if the trust funds
Outlays From 2025 to 2034
associated with those programs do not have sufficient resources
In CBO’s baseline projections, federal outlays (adjusted to make full payments. For example, CBO estimates that the
to exclude the effects of timing shifts) rise from Highway Trust Fund will be exhausted in 2028 and the Old-Age
and Survivors Insurance Trust Fund will be exhausted in 2033.
Nevertheless, CBO’s baseline projections reflect the assumption
14. Funding that is designated in keeping with the Deficit Control
that funding will be adequate to make full payments as required
Act as an emergency requirement raises the caps by the amount
by law. In addition, the Deficit Control Act requires CBO to
of funding provided. Section 103 of the FRA stipulated that
project spending for certain mandatory programs beyond their
discretionary emergency-designated funding provided by
scheduled expiration. Other rules that govern the construction
the Infrastructure Investment and Jobs Act, the Bipartisan
of CBO’s baseline projections have been developed by the agency
Safer Communities Act, and section 443 of the Consolidated
in consultation with the House and Senate Budget Committees.
Appropriations Act, 2023, does not count toward the caps.
For further details, see Congressional Budget Office, CBO
15. The average interest rate on debt reflects the interest rates on Explains How It Develops the Budget Baseline (April 2023),
Treasury securities of different maturities, the maturity structure www.cbo.gov/publication/58916, and CBO Explains the Statutory
of securities issued, and the costs of inflation-linked payments Foundations of Its Budget Baseline (May 2023), www.cbo.gov/
made on some of those securities. publication/58955.
Figure 1-3 .
Total Federal Outlays and Revenues

Percentage of GDP
40 Projected
Measured as a percentage
of GDP, projected outlays
30 Average outlays, remain about the same
1974 to 2023 for the next several years
(21.0) Outlays
24.1 as growth in outlays for
20 interest payments is
17.9 offset by decreases in
discretionary spending.
Average revenues, Revenues
1974 to 2023 Over the 2024–2034
10
(17.3) period, outlays exceed their
50-year average by more
than revenues exceed their
0 historical average.
1974 1984 1994 2004 2014 2024 2034

Social Security and the Major Health Care Programs. average 0.3 percent of GDP per year through 2034,
Measured as a percentage of GDP, outlays for Social and outlays for the Children’s Health Insurance
Security and the major health care programs, net of off- Program average 0.1 percent.
setting receipts, are projected to rise in each year of the
10-year period, from 10.8 percent in 2025 to 12.6 per- Other Mandatory Programs. Spending for programs
cent in 2034.17 other than Social Security and the major health care pro-
grams is projected to equal 3.1 percent of GDP in 2025.
CBO’s current baseline includes the following projec- Such spending includes outlays for income support pro-
tions for specific programs: grams (such as unemployment compensation and SNAP),
military and civilian retirement programs, most veterans’
• Outlays for Social Security increase to 5.3 percent of benefits, and major agriculture programs. That spending
GDP in 2025 and continue rising thereafter, reaching
also includes offsetting receipts (other than those related to
Medicare) collected by the federal government.
• Outlays for Medicare equal 3.2 percent of GDP in
2025 and climb to 4.2 percent of GDP in 2034. In CBO’s baseline projections, other mandatory spend-
ing measured relative to GDP generally declines after
• Federal outlays for Medicaid dip slightly—to 1.9 percent 2025, falling to 2.5 percent at the end of the projection
of GDP—in 2025 as pandemic-related spending ends
period. (That spending, including substantial outlays
and remain there through 2027. Thereafter, Medicaid
in response to the pandemic, peaked at 10.5 percent
outlays gradually climb to 2.2 percent of GDP in 2034.
of GDP in 2021.) The projected decline occurs in part
• Outlays for premium tax credits for health insurance because benefit amounts for many of those programs are
purchased through the marketplaces established adjusted for inflation each year, and in CBO’s economic
under the Affordable Care Act and related spending forecast, the growth of nominal GDP outpaces inflation.
Growth in veterans’ benefits, which averages 6 percent
17. Offsetting receipts for Medicare mostly consist of payments of per year (in nominal terms) after 2024, partially offsets
premiums, recoveries of overpayments made to providers, and amounts the decline in other mandatory outlays.
paid by states from savings on Medicaid’s prescription drug costs.
Figure 1-4 .
Outlays, by Category
Percentage of GDP
25 Projected
In CBO’s projections,
rising spending for Social
Security and Medicare
20
boosts mandatory outlays.
Discretionary spending
Mandatory as a share of GDP falls to
15 15.1
historic lows. And mounting
debt and higher interest
rates cause net outlays for
10 interest to increase. Starting
next year, those outlays are
Discretionary greater in relation to GDP
5 5.1 than at any point since at
3.9 least 1940, the first year
Net interest for which the Office of
0 Management and Budget
1974 1984 1994 2004 2014 2024 2034 reports such data.

Discretionary Spending. In accordance with section funding subject to the caps is projected to total $871 bil-
257 of the Deficit Control Act, discretionary funding in lion, which is below the current limit of $895 billion
future years is assumed to equal the amount provided so for that year. Nondefense funding constrained by the
far for 2024—including funding designated as an emer- caps is limited to $711 billion, the amount of the cap
gency requirement—with adjustments for inflation.18 currently in place for 2025. Funding not constrained by
When the projected amounts exceed the limits estab- the caps—mostly funding designated as an emergency
lished by the FRA, the total amount of budget author- requirement—is projected to total $127 billion in 2025;
ity in CBO’s baseline is adjusted to comply with those all but $20 million of that funding is for nondefense
limits. Those adjustments are incorporated in CBO’s programs. In 2025, discretionary outlays—which are
projections of discretionary funding in future years. projected to total $1.8 trillion—exceed total funding
provided for the year, largely as a result of spending from
Total discretionary budget authority projected for budget authority provided in previous years.
2025 amounts to $1.7 trillion (see Table 1-6). Defense
After 2025, when the caps are no longer in effect, total
discretionary budget authority rises by an average of
18. The Deficit Control Act specifies which measures of inflation
2.3 percent per year in CBO’s projections. Discretionary
CBO should use to construct its projections: The employment
cost index for wages and salaries of workers in private industry is outlays initially grow more slowly, primarily because
used to adjust discretionary funding related to federal personnel, of funding reductions in 2024 and 2025. By 2034, the
and the gross domestic product price index is used to adjust growth in discretionary outlays—at 2.2 percent—nearly
other discretionary funding. For accounts with enacted advance matches the rate of growth in funding for that year.
appropriations, CBO projected future discretionary funding for
those years for which funding has not been provided, starting with
existing appropriations and adjusting those amounts for inflation.
Measured as a percentage of GDP, discretionary outlays to 3.3 percent from 2027 through 2030 before
decline steadily, from 5.9 percent in 2026 to 5.1 percent increasing again to 3.5 percent in the final years of
in 2034. (Their previous low—6.0 percent—was in the projection period. Changes in the average interest
1999.) Over the past 50 years, discretionary outlays have rate stem from interest rates on Treasury securities,
averaged 8.0 percent of GDP. the rate of inflation applicable to Treasury inflation-
protected securities, and the maturity structure of
In CBO’s projections, defense outlays fall to 2.5 per- outstanding securities. (For a discussion of the factors
cent of GDP in 2034—their smallest percentage since responsible for changes in interest rates and inflation,
at least 1962 (the earliest year for which the Office of see Chapter 2.)
Management and Budget reports such data). Outlays
for nondefense discretionary programs amount to • Primary deficits average 2.1 percent of GDP from 2025
to 2034, adding to debt held by the public each year.
2.6 percent of GDP in 2034, also their smallest share
since at least 1962. The previous lows for defense and
On average, in CBO’s projections, increases in the average
nondefense spending compared with the size of the econ-
interest rate on federal debt account for about two-thirds
omy occurred at the turn of the 21st century and were
of the increase in net interest costs from 2025 to 2034.20
2.9 percent and 3.1 percent, respectively.
Net Interest Outlays. Over the 10-year projection

Revenues
Federal revenues in 2023 totaled $4.4 trillion. At
period, net outlays for interest increase by 6.2 percent
16.5 percent of GDP, revenues in that year were con-
a year, on average, rising from $951 billion in 2025 to
siderably lower than the 19.4 percent recorded in 2022,
$1.6 trillion in 2034. Measured relative to the size of the
which was the highest percentage in more than 20 years.
economy, those outlays rise from 3.2 percent in 2025 to
That decline was largely in collections of individual
3.9 percent in 2034—1.9 percentage points higher than
income taxes, which had reached an unprecedented high
their 50-year average and higher than they have been in
in 2022. Also contributing to the decline in 2023 were
any year since at least 1940 (the first year for which the
lower remittances from the Federal Reserve, which fell to
Office of Management and Budget reports such data).
near zero in that year as rising short-term interest rates
pushed the agency’s expenses above its income.
The amount of the federal government’s net interest costs
is mainly determined by the outstanding debt held by
CBO expects total receipts to temporarily jump to
the public and the average interest rate on that debt.
17.5 percent of GDP in 2024 as a result of the collec-
Growth in net interest costs is affected by changes in the
tion of certain postponed tax payments, before declin-
average interest rate on federal debt and by the size of
ing to 17.1 percent of GDP in 2025 (see Table 1-7 on
the primary deficit, which requires the government to
page 32). Receipts are projected to subsequently rise
borrow more and thus boosts debt held by the public.19
to 17.9 percent by 2034, largely because of scheduled
Borrowing to pay for greater interest costs pushes up the
changes in tax provisions and because the Federal Reserve
net cost of interest further—in large part because of the
is anticipated to begin once again remitting significant
way that increases in the average interest rate and the
amounts to the Treasury.
primary deficit interact.
• Average interest rates on federal debt rise in CBO’s 20. To assess the share of the increase in net interest costs attributable
projections as debt matures and is refinanced. In to changes in the average interest rate, CBO started by examining
2025, the average interest rate on debt held by the a benchmark scenario in which that rate did not change after
public is projected to be 3.4 percent, 0.1 percentage 2023 and there were no primary deficits adding to the amount of
point higher than it was in 2024 and 0.7 percentage debt. CBO estimated the increase, relative to that benchmark, in
points higher than it was in 2023. That rate net interest costs from the change in the average interest rate in
CBO’s projections (by using a scenario with those rates and no
generally remains steady thereafter, declining slightly primary deficits) and from primary deficits in CBO’s projections
(by using a scenario with those deficits and no change in the
19. For more details on the government’s net interest costs, see average interest rate). The agency used the relative size of those
Congressional Budget Office, Federal Net Interest Costs: A Primer estimates to calculate the share of the total increase in net interest
(December 2020), www.cbo.gov/publication/56780. The costs also costs attributable to the increase in the average interest rate by
are affected by debt that is not counted as part of primary deficits, allocating the interaction between the average interest rate and
such as that issued to partly finance federal credit programs. the primary deficit proportionally.
Table 1-6 .
CBO’s Baseline Projections of Discretionary Spending,

Billions of dollars
Total
Actual, 2025– 2025–
2023a 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2029 2034
Budget authority
Defense
Base spendingb 858 850 871 892 912 933 954 976 998 1,021 1,045 1,069 4,562 9,672
Emergency spending not subject to
the capsc * * * * * * * * * * * * * *
Emergency spending resulting in
cap adjustmentsd 33 0 0 0 0 0 0 0 0 0 0 0 0 0
Other nonbase spending 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Subtotal, defense 891 850 871 892 912 933 954 976 998 1,021 1,045 1,069 4,562 9,672
Nondefense
Base spendingb 789 750 711 728 744 758 776 795 814 833 853 873 3,718 7,885
the capsc 70 71 70 68 70 71 72 74 75 77 78 80 352 736
cap adjustmentsd 69 28 29 29 30 30 31 32 32 33 34 34 149 314
Other nonbase spending 28 28 28 29 29 30 31 31 32 33 33 34 147 311
Subtotal, nondefense 957 876 838 854 873 890 911 932 954 975 998 1,022 4,366 9,246
Total budget authority 1,848 1,726 1,709 1,746 1,786 1,823 1,865 1,908 1,952 1,996 2,043 2,090 8,928 18,917
Continued
Those overall movements are driven by the follow- 2024 for two reasons: because of the collection of
ing changes in specific sources of revenues in CBO’s postponed payments from corporations in areas
projections: affected by natural disasters, and because payments
related to the corporate alternative minimum tax that
• Individual income tax receipts declined sharply was enacted in 2022 were deferred until 2024 as a
in relation to GDP last year—from 10.4 percent
result of penalty relief granted by the IRS. As those
in 2022 to 8.1 percent in 2023. That reduction
delays end, receipts decline to 1.7 percent of GDP
occurred in part because asset values and realizations
in 2025. Through 2034, receipts decrease steadily
of capital gains fell, and also because the Internal
in relation to GDP, primarily from the net effects of
Revenue Service (IRS) postponed until 2024 certain
scheduled changes in tax rules.
tax payment deadlines for taxpayers in areas affected
by natural disasters. (Otherwise, those payments • Federal Reserve remittances, or the net earnings
would have been due in 2023.) CBO expects receipts of the central bank, remain near zero from 2023
to climb to 8.8 percent of GDP in 2024 as those to 2028 because higher short-term interest rates
delayed payments come in and fall to 8.6 percent have increased the Federal Reserve System’s interest
of GDP in 2025 because no further delays are expenses to such an extent that they exceed its
anticipated. Receipts then grow from 2025 to income. CBO anticipates that remittances will rise
2027 because scheduled changes in tax provisions, in 2029 and total 0.4 percent of GDP in 2034—the
including an increase in most tax rates, are projected same level as in 2022.
to drive up receipts in relation to taxable personal
income. Real bracket creep (explained below) also • Excise tax receipts are projected to increase between
2023 and 2026. The recent large amounts reported
contributes to rising receipts over time.
for refunds and tax credits for the nontaxable use
• Corporate income tax receipts climb from of gasoline—which are currently unexplained—
1.6 percent of GDP in 2023 to 2.0 percent in decline over the next few years in CBO’s projections.
CBO’s Baseline Projections of Discretionary Spending,

Billions of dollars
Total
Actual, 2025– 2025–
2023a 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2029 2034
Outlays
Defense
Base spendingb,e 805 822 845 869 888 907 926 946 966 988 1,011 1,034 4,435 9,381
the capsc * * * * * * * * * * * * * *
cap adjustmentsd n.a. 0 0 0 0 0 0 0 0 0 0 0 0 0
Other nonbase spending n.a. 0 0 0 0 0 0 0 0 0 0 0 0 0
Subtotal, defense 805 822 845 869 888 907 926 946 966 988 1,011 1,034 4,435 9,381
Nondefense
Base spendingb 900 875 846 836 835 840 853 868 884 902 920 940 4,210 8,723
the capsc 17 28 38 51 62 68 71 72 71 70 70 71 290 645
cap adjustmentsd n.a. 8 14 18 21 23 25 26 28 29 30 30 102 245
Other nonbase spending n.a. 6 12 17 20 22 23 25 26 27 28 29 95 230
Subtotal, nondefense 917 917 911 922 938 953 972 991 1,009 1,028 1,048 1,071 4,696 9,843
Total outlayse 1,722 1,739 1,756 1,791 1,825 1,860 1,899 1,937 1,975 2,016 2,059 2,106 9,131 19,224
Addendum:
Discretionary timing shifts in CBO’s
baseline * -5 0 0 0 6 -6 0 0 0 7 * n.a. n.a.
Discretionary outlays in CBO’s
baseline 1,722 1,734 1,756 1,791 1,825 1,866 1,893 1,937 1,975 2,016 2,066 2,106 9,131 19,231
Outlays from the BSCA and IIJA as
specifiedf 16 27 36 49 58 59 52 40 28 18 11 6 254 358

BSCA = Bipartisan Safer Communities Act; FRA = Fiscal Responsibility Act; IIJA = Infrastructure Investment and Jobs Act; n.a. = not applicable; * = between zero
and $500 million.
a. The Treasury does not distinguish between outlays stemming from base funding and outlays stemming from nonbase funding. Consequently, the budget does
not record any actual amounts attributed specifically to base or nonbase funding. Amounts show how the FRA would have applied to budget authority or
some outlays were that act in effect in 2023. (Outlays from funding not subject to the caps is estimated on the basis of data from the Office of Management
and Budget.)
b. Consists of all discretionary appropriations except those that have been designated as an emergency requirement or for disaster assistance, certain program
integrity activities (which identify and reduce overpayments in some benefit programs), certain fire suppression operations, certain funding derived from
the Harbor Maintenance Trust Fund, and programs designated in the 21st Century Cures Act. Funding in this category is subject to the caps established by
sections 101 and 102 of the FRA, which are in effect for 2024 and 2025.
c. Consists almost entirely of funding designated as an emergency requirement provided by the IIJA, the BSCA, and section 443 of the Consolidated
Appropriations Act, 2023. Section 103 of the FRA stipulates that such funding does not count toward the caps.
d. Consists of funding, designated as an emergency requirement in keeping with section 251 of the Deficit Control Act, that changes the caps.
e. When October 1 (the first day of the fiscal year) falls on a weekend, certain payments that would have ordinarily been made on that day are instead made at
f. Most funding provided by the IIJA and BSCA was provided only through 2026. In consultation with the budget committees, CBO applied its typical baseline
treatment of discretionary funding to the funding provided by those bills and therefore projects it to grow with inflation beyond 2026. These amounts show
what CBO’s baseline projections of outlays from that funding would look like if that funding was instead not projected.
Table 1-7 .
CBO’s Baseline Projections of Revenues

Total
Actual, 2025– 2025–
2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2029 2034
Individual income taxes 2,176 2,469 2,520 2,789 3,031 3,124 3,251 3,381 3,511 3,634 3,793 3,973 14,715 33,007
Payroll taxes 1,614 1,663 1,734 1,812 1,884 1,960 2,039 2,121 2,205 2,291 2,379 2,466 9,430 20,892
Corporate income taxes 420 569 494 491 484 491 501 511 519 519 533 551 2,461 5,094
Other
Excise taxes 76 85 92 97 99 100 100 100 100 101 101 102 487 991
Federal Reserve remittances 1 1 3 4 7 12 65 109 122 138 149 161 91 770
Customs duties 80 80 83 87 91 93 96 98 100 103 105 107 450 963
Estate and gift taxes 34 33 31 31 44 47 49 52 55 58 62 66 203 496
Miscellaneous fees and fines 38 35 38 40 42 43 46 44 44 45 47 48 209 437
Subtotal 229 234 247 259 283 296 355 402 421 445 464 485 1,439 3,656
Total 4,439 4,935 4,996 5,351 5,683 5,870 6,147 6,414 6,656 6,890 7,168 7,474 28,046 62,649
On-budget 3,246 3,706 3,711 4,013 4,295 4,430 4,650 4,860 5,041 5,213 5,429 5,672 21,100 47,313
Off-budgeta 1,194 1,229 1,285 1,337 1,387 1,440 1,496 1,554 1,615 1,677 1,740 1,803 6,946 15,336
Addendum:
GDP 26,974 28,177 29,256 30,504 31,756 33,043 34,375 35,746 37,157 38,609 40,106 41,646 158,933 352,197
Individual income taxes 8.1 8.8 8.6 9.1 9.5 9.5 9.5 9.5 9.5 9.4 9.5 9.5 9.3 9.4
Payroll taxes 6.0 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9
Corporate income taxes 1.6 2.0 1.7 1.6 1.5 1.5 1.5 1.4 1.4 1.3 1.3 1.3 1.5 1.4
Other
Excise taxes 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.2 0.3 0.3
Federal Reserve remittances * * * * * * 0.2 0.3 0.3 0.4 0.4 0.4 0.1 0.2
Customs duties 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3
Estate and gift taxes 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.2 0.2 0.2 0.1 0.1
Miscellaneous fees and fines 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
Subtotal 0.8 0.8 0.8 0.8 0.9 0.9 1.0 1.1 1.1 1.2 1.2 1.2 0.9 1.0
Total 16.5 17.5 17.1 17.5 17.9 17.8 17.9 17.9 17.9 17.8 17.9 17.9 17.6 17.8
On-budget 12.0 13.2 12.7 13.2 13.5 13.4 13.5 13.6 13.6 13.5 13.5 13.6 13.3 13.4
Off-budgeta 4.4 4.4 4.4 4.4 4.4 4.4 4.4 4.3 4.3 4.3 4.3 4.3 4.4 4.4

GDP = gross domestic product; * = between zero and 0.05 percent of GDP.
a. Receipts from Social Security payroll taxes.
Thereafter, excise taxes gradually decrease in relation GDP—close to the 8.0 percent of GDP they averaged
to GDP along with the tax bases on which many over the past 50 years (see Figure 1-5).
excise taxes are levied.
That decline resulted from several factors. First, real-
Individual Income Taxes izations of capital gains dropped from historic highs
In 2022, receipts from individual income taxes totaled to a level closer to their long-term average. Second,
$2.6 trillion, or 10.4 percent of GDP—the highest those the IRS postponed some filing deadlines for taxpayers
receipts have been in relation to the size of the econ- in areas affected by natural disasters (including most
omy since the 16th Amendment authorizing the federal of California), which delayed some tax payments that
government to collect income taxes was ratified in 1913. would otherwise have been made in 2023. Third, the
Those receipts fell sharply in 2023, to 8.1 percent of Treasury reclassified as payroll taxes some receipts
Figure 1-5 .
Revenues, by Category
Percentage of GDP
12 Projected
Receipts from individual

9.5 income taxes fell sharply in
Individual income taxes
9 2023 from a historic high
in 2022. They declined
in part because of lower
capital gains on sold assets
6 Payroll taxes 5.9 and because the Internal
Revenue Service extended
some tax payment
deadlines. As those delayed
3 payments are made,
Corporate income taxes
revenues are projected to
1.3
Other a 1.2 rise in 2024. They rise again
in 2026 and 2027.
0
1974 1984 1994 2004 2014 2024 2034

initially recorded in prior years as individual income tax 2024. The offsetting factors that contribute to that net
revenues, and the amount of that adjustment was larger increase are described in more detail below.
in 2023 than it was in 2022.21
Scheduled Tax Changes. At the end of calendar year
Receipts from individual income taxes are projected to 2025, nearly all the changes to the individual income tax
rebound to 8.8 percent of GDP this year, largely because made by the 2017 tax act are scheduled to expire under
of factors that reduced receipts in 2023 but that CBO current law. Together, those scheduled changes are the
does not expect to persist. Those factors include the most significant factor pushing up tax revenues in relation
delay in tax payments and the large reclassification of tax to income over the next 10 years in CBO’s projections.
revenues. Receipts then decline to 8.6 percent of GDP in The expiring provisions affect major elements of the
2025 because no further postponed deadlines are antici- individual income tax code, including statutory tax rates
pated. Scheduled changes in tax rules and real bracket and brackets, allowable deductions, the size and refund-
creep cause individual income tax receipts to rise in ability of the child tax credit, the 20 percent deduction
relation to GDP after 2025, totaling 9.5 percent of GDP for certain business income, and the income levels at
in 2034, 0.8 percentage points higher than projected for which the alternative minimum tax takes effect.22 Those
changes cause tax liabilities (the amount taxpayers owe)
to rise beginning in calendar year 2026, boosting receipts
21. Those reclassifications occur because the Treasury initially cannot in fiscal year 2026 and beyond. In CBO’s projections,
distinguish payroll taxes from individual income taxes in the
payments of withheld taxes it receives. Instead, it first allocates
withheld taxes to one source or the other on the basis of estimates 22. The alternative minimum tax is similar to the regular income tax
made in advance of actual collections. As additional information but includes fewer exemptions, deductions, and rates. People who
becomes available (including detailed information from tax file individual income tax returns must calculate the tax owed
returns), the Treasury revises those allocations. under each system and pay the larger of the two amounts.
the scheduled changes to those tax rules boost individ- Other factors are projected to reduce receipts relative
ual income tax receipts measured as a share of GDP by to GDP by an additional 0.1 percentage point, on net,
0.8 percentage points from 2025 to 2034. over the 2024‒2034 period. One of those factors is the
IRS’s decision to postpone until fiscal year 2024 the
Real Bracket Creep and Related Effects. The income filing deadlines for taxpayers affected by natural disasters.
thresholds for the various tax rate brackets in the individ- Those delayed payments (which would typically have
ual income tax are indexed to increase with inflation (as been due throughout fiscal year 2023) will boost receipts
measured by the chained consumer price index published this year but not in future years. In addition, CBO
by the Bureau of Labor Statistics).23 When income grows anticipates a modest decline in the share of business
faster than prices—as CBO projects it will over the income that is subject to the individual income tax rather
2024–2034 period—more income is pushed into higher than the corporate income tax. The agency also projects
tax brackets, a process known as real bracket creep. Many an increase relative to the size of the economy in the
other parameters of the tax system are also indexed for amount of interest paid on mortgages, which is deduct-
inflation, including the amounts of the standard deduc- ible for taxpayers who itemize.
tion and the earned income tax credit. But certain parame-
ters, such as the amount of the child tax credit, are fixed in Partially offsetting those trends is a modest increase
nominal dollars and not adjusted for inflation. relative to GDP in wages and taxable interest, which
is expected to boost receipts over the next decade.
The individual income tax system is thus not indexed for Moreover, for the past several years, the correlation
real growth (that is, growth beyond the rate of inflation). between individual income tax revenues and the econ-
Instead, it is partially indexed for inflation, and the index- omy has been weaker than is typical. In 2023, those
ing occurs with a lag. Together, those features of the system receipts were less than expected given currently available
cause projected annual revenues measured as a percentage of data on the state of the economy and other factors that
GDP to rise by 0.4 percentage points from 2025 to 2034. CBO could identify. That unexplained weakness in
individual income tax receipts is projected to gradually
Other Factors. Over the next decade, several other dissipate over the next few years.
factors decrease individual income tax receipts measured
as a share of GDP—by 0.4 percentage points, on net, in Payroll Taxes
CBO’s projections. Receipts from payroll taxes, which fund social insurance
programs—primarily Social Security and Medicare—
The largest factor is a projected decline in realizations of totaled $1.6 trillion in 2023, or 6.0 percent of GDP. In
capital gains relative to the size of the economy. Detailed CBO’s projections, payroll taxes decline to 5.9 percent
tax return data for calendar year 2021—the most recent of GDP in 2024 and remain at that level through the
available—now show that such realizations totaled end of the 10-year period. That initial decline results
8.8 percent of GDP in that year. Although CBO esti- from the Treasury’s reclassification of $48 billion of past
mates that realizations subsequently decreased, they are individual income tax receipts as payroll taxes—an action
projected to equal 5.1 percent of GDP in calendar year that boosted the amount of payroll taxes recorded for
2023—which is still above the 3.9 percent of GDP they 2023 but will not affect those collections in later years.
have averaged over the past 40 years. In CBO’s baseline
projections, capital gains realizations continue to dimin- Corporate Income Taxes
ish over the next decade to a level that, after differences In 2023, receipts from corporate income taxes totaled
in applicable tax rates are accounted for, is consistent $420 billion, or 1.6 percent of GDP. CBO expects cor-
with their historical average. That anticipated decline porate income tax receipts to rise to 2.0 percent of GDP
reduces receipts from individual income taxes measured in 2024, largely because payments that otherwise would
as a share of GDP by a total of about 0.3 percentage have been made in 2023 will instead be paid in fiscal
points from 2025 to 2034. year 2024.24 Following the temporary boost in receipts
23. For more information, see Congressional Budget Office, 24. For more details about how CBO projects corporate income
“How Income Growth Affects Tax Revenues in CBO’s Long- tax revenues, see Congressional Budget Office, “How CBO
Term Budget Projections” (June 25, 2019), www.cbo.gov/ Projects Corporate Income Tax Revenues” (October 5, 2023),
publication/55368. www.cbo.gov/publication/59436.
in 2024 from those delayed payments, corporate income receipts in 2023 and will continue to do so for several
tax receipts decline in CBO’s projections to 1.7 percent more years as firms take fewer deductions up front. (It will
of GDP in 2025. They continue to gradually decrease not significantly affect receipts in later years.) Additionally,
as a share of GDP throughout the next decade, totaling provisions allowing firms to immediately deduct from
1.3 percent of GDP in 2034. The overall reduction in their taxable income 100 percent of their investments in
revenues over the 10-year projection period stems from equipment are scheduled to phase out from 2023 to 2026.
the varying effects of the postponed tax payments, provi- By reducing the deduction that can be taken on new
sions of the 2017 tax act, and other factors. investments in the first year such an investment is made,
that change will add to receipts during the phase-down
Postponed Payments. Two actions are estimated to period but will have little effect by 2034.
have shifted a total of about $60 billion in payments
from 2023 into 2024. First, the IRS postponed pay- Other provisions of the law changed rules related to the
ment deadlines for taxpayers, including corporations, taxation of foreign profits. Those changes, which are
in areas affected by natural disasters. Second, a new scheduled to take effect in 2026, will increase revenues
corporate alternative minimum tax on the book income in subsequent years. The increases will be more than
of certain corporations (based on an adjusted measure offset by the reductions stemming from the previously
of the income reported on their financial statements) described changes, however.
was created as part of the 2022 reconciliation act. That
tax went into effect in 2023, but the IRS subsequently Other Factors. Various other factors are projected to
granted penalty relief to corporations that did not reduce corporate income tax revenues as a share of
make estimated payments in 2023 while it finalized the GDP by an additional 0.3 percent between 2025 and
necessary guidelines and regulations for calculating their 2034. Most significantly, profits on businesses’ domestic
liability for the tax. Taken together, those additional activity are projected to decline over the next decade,
collections are projected to boost receipts by 0.2 percent reducing taxes as a share of the economy. CBO further
of GDP in 2024 but not in later years. anticipates that businesses will claim more tax credits
in future years, in part because international firms are
Provisions of the 2017 Tax Act. Over the next decade, expected to increasingly report foreign profits earned in
several provisions of the 2017 tax act affect corporate jurisdictions with higher taxes. Collections of taxes for
income tax receipts. In CBO’s projections, those provi- years other than firms’ most recent tax years are also pro-
sions reduce receipts as a share of GDP by 0.2 percentage jected to decrease over the next decade. Those collections
points, on net, between 2025 and 2034. have been high as a share of tax liabilities over the past
several years, but they decline in CBO’s projections to a
Following one provision of that law, firms have been level consistent with their average over the past decade.
making scheduled payments for a onetime tax on
certain foreign profits since 2018. That tax applied to Receipts From Other Sources
foreign profits for which U.S. taxes had been deferred Receipts from all revenue sources other than individual
under prior law. Taxes on those earnings, which are income taxes, payroll taxes, and corporate income taxes
based on the value of those profits as of late calendar totaled $229 billion, or 0.8 percent of GDP, in 2023 (see
year 2017 (and which are unrelated to future business Table 1-8). Those receipts are projected to remain at
activity), can be paid over eight years in installments that that level this year and for the next few years. By 2034,
vary in size. The payments thus boost receipts in CBO’s they rise to 1.2 percent of GDP in CBO’s projections,
baseline projections to varying degrees from 2023 to because remittances from the Federal Reserve, which
2026 but not in later years, thereby contributing to lower nearly ceased in 2023, are expected to resume in higher
receipts relative to GDP after 2026. amounts starting in 2029.
Another provision of the law, which took effect in 2022, Estate and Gift Taxes. In 2023, revenues from estate
requires firms to begin capitalizing and amortizing certain and gift taxes totaled $34 billion, or 0.1 percent of GDP.
expenditures for research and development over a five- They are projected to rise by 45 percent from 2026 to
year period as they are incurred; previously, firms could 2027 because of the expiration at the end of calendar
immediately deduct such expenses. That change elevated year 2025 of a provision of the 2017 tax act that doubled
Table 1-8 .
CBO’s Baseline Projections of Smaller Sources of Revenues

Billions of dollars
Total
Actual, 2025– 2025–
2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2029 2034
Excise taxes
Highway 27 30 37 41 42 41 41 40 40 39 39 38 176 377
Health care 2 4 3 3 3 3 3 3 3 3 3 3 14 29
Aviation 17 19 20 21 21 22 23 24 25 26 27 27 98 218
Tobacco 10 10 9 8 8 7 7 6 5 5 5 4 45 75
Alcohol 11 11 11 10 11 11 11 11 11 11 12 12 53 109
Other excise taxes 9 12 13 14 15 15 16 16 16 17 17 18 62 142
Subtotal 76 85 92 97 99 100 100 100 100 101 101 102 449 948
Federal Reserve remittances 1 1 3 4 7 12 65 109 122 138 149 161 91 770
Customs duties 80 80 83 87 91 93 96 98 100 103 105 107 450 963
Estate and gift taxes 34 33 31 31 44 47 49 52 55 58 62 66 203 496
Miscellaneous fees and fines
Universal Service Fund fees 9 9 10 9 10 10 10 10 10 10 10 10 48 96
Other fees and fines 20 25 24 25 27 30 32 35 33 33 34 35 139 310
Subtotal 38 35 38 40 42 43 46 44 44 45 47 48 209 437
Total 229 234 247 259 283 296 355 402 421 445 464 485 1,439 3,656
the amount of the estate and gift tax exemption. By also anticipates that excise taxes on tobacco and alco-
2034, those revenues total 0.2 percent of GDP. hol products will be reduced over the next decade as a
result of importers’ increasingly claiming drawbacks (or
Excise Taxes. Collections of excise taxes—which are lev- refunds) of those taxes.25
ied on the production or purchase of particular types of
goods and services, including motor fuels, tobacco, alco- Customs Duties. Collections of customs duties, which
hol, and aviation—totaled $76 billion, or 0.3 percent are assessed on certain imported goods, totaled $80 bil-
of GDP, in 2023. Those receipts rise slightly through lion, or 0.3 percent of GDP, in 2023. Those receipts are
2026 but eventually decline to 0.2 percent of GDP in projected to decline slightly but remain near 0.3 percent
2034 in CBO’s projections. as a share of GDP through 2034. That slight decline
reflects CBO’s expectation that some imported goods
The initial increase in receipts reflects CBO’s expectation from countries subject to the additional tariffs imposed
that the large amounts reported for refunds and tax cred- beginning in 2018 (in particular, the additional tar-
its attributable to the nontaxable use of gasoline will not iffs that apply to a large share of imported goods from
continue. Those amounts, which are estimated to have China) will continue to be diverted to other countries.
totaled $18 billion last year, did not exceed $2 billion in (Although those additional tariffs increased customs
any prior year. Because CBO cannot determine the cause duties by roughly 0.2 percent of GDP from 2020
of those elevated refunds and tax credits, it projects that
they will gradually dissipate over the next several years. 25. On August 23, 2021, the U.S. Court of Appeals for the
After 2026, excise taxes decrease in relation to GDP Federal Circuit upheld an earlier ruling by the U.S. Court of
International Trade in National Association of Manufacturers v.
as the number of units of taxed goods and services is
Department of the Treasury. As a result of the ruling, tobacco and
projected to grow slowly or decline. (Many excise taxes alcohol products on which excise taxes would normally be levied
are imposed as a fixed dollar amount per unit sold.) For will receive a drawback (or refund) of those excise taxes when
example, taxes on gasoline will decline, CBO projects, as the merchandise can be matched to similar products that are
the average fuel efficiency of fleets of vehicles improves exported or destroyed—even when no excise tax had previously
and the consumption of gasoline thus decreases. CBO been collected on the exported or destroyed merchandise. Those
drawbacks are often referred to as double drawbacks.
through 2022, their effect diminished as customs duties Like federal spending, tax expenditures provide finan-
declined sharply in 2023.) CBO’s baseline projections cial assistance for specific activities, entities, or groups
reflect the assumption that tariffs, along with any sub- of people. However, the budgetary treatment of tax
sequent exemptions provided by the Administration, expenditures differs from that of spending programs.
continue at the rates in effect as of December 5, 2023, Tax expenditures increase the deficit by reducing the
when CBO completed its economic forecast. government’s revenue collections, although the amount
of forgone revenues attributable to specific tax expendi-
Remittances From the Federal Reserve. The cen- tures (or to tax expenditures in general) is not typically
tral bank’s remittances to the Treasury declined from recorded separately in the budget, unlike outlays for each
$107 billion (or 0.4 percent of GDP) in 2022 to less spending program.27 The Congressional Budget Act of
than $1 billion in 2023—the lowest amount as a share 1974 requires that the federal budget list tax expendi-
of the economy since remittances began in 1947. That tures. The Administration regularly publishes estimates of
sharp drop occurred because higher short-term inter- tax expenditures prepared by the Treasury’s Office of Tax
est rates increased the Federal Reserve System’s interest Analysis, and the Congress publishes estimates prepared
expenses to such an extent that they exceeded its by the staff of the Joint Committee on Taxation (JCT).28
income. When a Federal Reserve bank’s expenses exceed
its income, it records the difference as a deferred asset Tax expenditures have a large effect on the federal bud-
(or negative liability) and suspends remittances to the get. In fiscal year 2024, the value of all the tax expendi-
Treasury. tures in the individual and corporate income tax systems
(including their effects on payroll taxes) is estimated to
Although CBO estimates that the Federal Reserve be $2.1 trillion, or 7.4 percent of GDP.29 That amount,
System as a whole will have losses through 2025, the which was calculated by CBO on the basis of estimates
agency’s baseline projections show small remittances
for the next few years to account for the possibility that the Federal tax laws which allow a special exclusion, exemption, or
some individual Federal Reserve banks might record deduction from gross income or which provide a special credit, a
profits and remit them to the Treasury. As falling infla- preferential rate of tax, or a deferral of tax liability.”
tion allows the Federal Reserve to lower interest rates, 27. The exception is the portion of refundable tax credits that exceeds
the system returns to net profitability in 2026 in CBO’s a taxpayer’s tax liability; that amount is recorded in the budget as
projections. Those profits gradually reduce the deferred mandatory spending.
asset through 2028; thereafter, remittances return to
28. For this analysis, CBO adopted JCT’s definition of tax
0.4 percent of GDP—reflecting the difference between expenditures as deviations from a “normal” income tax structure.
the income the Federal Reserve earns on its portfolio of For the individual income tax, that structure includes existing
assets and the interest it pays to banks that hold reserves regular tax rates, the standard deduction, personal exemptions,
with the central bank. CBO’s estimates of remittances and deductions of business expenses. For the corporate income
are highly uncertain because they depend on the path of tax, that structure includes the statutory tax rate, generally
defines income on an accrual basis, and allows for costs to be
short-term interest rates in the projection period. recovered according to a specified depreciation system that is
less favorable than under current law. For more information,
Miscellaneous Fees and Fines. Receipts from other fees see Congressional Budget Office, How Specifications of the
and fines totaled $38 billion, or 0.1 percent of GDP, in Reference Tax System Affect CBO’s Estimates of Tax Expenditures
2023. Those receipts are projected to remain at 0.1 per- (December 2021), www.cbo.gov/publication/57543; and Joint
Committee on Taxation, Estimates of Federal Tax Expenditures
cent of GDP every year through 2034.
for Fiscal Years 2023–2027, JCX-59-23 (December 2023),
www.jct.gov/publications/2023/jcx-59-23. The Treasury’s
Tax Expenditures definition of tax expenditures is broadly similar to
Many exclusions, deductions, credits, and preferential JCT’s. See Office of Management and Budget, Analytical
rates in the federal tax system cause revenues to be lower Perspectives: Budget of the U.S. Government, Fiscal Year 2024
than they would be otherwise for any underlying set of (March 2023), pp. 203–235, www.govinfo.gov/app/details/
BUDGET-2024-PER.
tax rates. Such provisions resemble federal spending and
contribute to the budget deficit; thus, they are known as 29. Unlike JCT, CBO includes estimates of the largest payroll tax
tax expenditures.26 expenditures. As defined by CBO, a normal payroll tax structure
includes the existing payroll tax rates as applied to a broad
definition of compensation, which consists of cash wages and
26. Sec. 3(3) of the Congressional Budget and Impoundment Control fringe benefits. Tax expenditures that reduce the tax base for payroll
Act of 1974, codified at 2 U.S.C. § 622(3) (2023), defines tax taxes also decrease spending for Social Security by reducing the
expenditures as “those revenue losses attributable to provisions of earnings base used to calculate Social Security benefits.
Figure 1-6 .
Estimated Outlays, Revenues, and Tax Expenditures in 2024

Percentage of GDP
Outlays a Revenues Tax expenditures
16
12
Corporate income
8 tax expenditures
Payroll tax
expenditures
4 Individual income
tax expenditures b
0
Mandatory b Discretionary Net interest Individual Payroll tax Other All c
income tax
Tax expenditures are provisions of the tax system (such as tax credits and deductions) that cause revenues to be lower than they would be
otherwise. Like federal spending programs, tax expenditures add to the budget deficit. In 2024, the total revenues forgone because of tax
expenditures are projected to equal 7.4 percent of GDP.
Data source: Congressional Budget Office, using estimates of tax expenditures prepared by the staff of the Joint Committee on Taxation. See www.cbo.gov/
publication/59710#data.
a. When October 1 (the first day of the fiscal year) falls on a weekend, certain payments that would have ordinarily been made on that day are instead made at
the end of September and thus are shifted into the previous fiscal year. Outlays here have been adjusted to exclude the effects of those timing shifts.
b. The outlay portions of refundable tax credits, which are estimated to total 0.6 percent of GDP in 2024, are included in tax expenditures as well as in
mandatory outlays.
c. This total is the sum of the estimates for each separate tax expenditure and does not account for interactions among them. However, CBO estimates that in
2024, the total for all tax expenditures will roughly equal the sum of the estimates for each separate tax expenditure. Because estimates of tax expenditures
are based on people’s behavior with current provisions of the tax code in place, they do not reflect the amount of revenues that would be collected if
provisions were eliminated and taxpayers adjusted their activities accordingly.
prepared by JCT, equals about 43 percent of all federal exclusions. In other words, the tax expenditure for all
revenues in 2024 and exceeds projected outlays for all exclusions considered together would be greater than
discretionary programs combined (see Figure 1-6). the sum of the separate tax expenditures for each exclu-
sion. In 2024, those and other factors are expected to
Simply adding up the estimates for specific tax expen- be approximately offsetting, so the total amount of tax
ditures does not account for the interactions that may expenditures is projected to roughly equal the sum of the
occur among those tax provisions. For instance, the total individual tax expenditures.
tax expenditure for all itemized deductions would be
smaller than the sum of the separate tax expenditures for Estimates of tax expenditures measure the difference
each deduction. The reason is that all taxpayers would between households’ and businesses’ tax liability under
claim the standard deduction if there were no itemized current law and the tax liability they would have incurred
deductions; but if only one or a few itemized deduc- if the provisions generating those tax expenditures were
tions were removed, many taxpayers would still choose repealed and taxpayers’ behavior was unchanged. Such
to itemize. The progressive structure of the tax brackets estimates do not represent the amount of revenues that
(meaning that higher rates apply to higher income) would be raised if those provisions were eliminated,
ensures that the opposite would be the case with income because the changes in incentives that would result from
Table 1-9 .
Key Projections in CBO’s Baseline, Adjusted to Exclude Effects of Timing Shifts,

Through 2054
Percentage of GDP
Annual average
2026– 2030– 2035– 2045–
2024 2025 2029 2034 2044 2054
Revenues
Individual income taxes 8.8 8.6 9.4 9.5 9.7 10.1
Payroll taxes 5.9 5.9 5.9 5.9 5.9 5.8
Corporate income taxes 2.0 1.7 1.5 1.4 1.3 1.4
Othera 0.8 0.8 0.9 1.1 1.2 1.3
Total revenues 17.5 17.1 17.8 17.9 18.2 18.6
Outlays
Mandatory
Social Security 5.2 5.3 5.5 5.8 6.0 6.0
Major health care programsb,c 5.6 5.5 5.7 6.4 7.5 8.3
Otherb 3.1 3.1 2.8 2.6 2.4 2.1
Subtotal 13.9 13.9 14.1 14.8 15.8 16.4
Discretionaryb 6.2 6.0 5.7 5.2 4.9 4.9
Net interest 3.1 3.2 3.3 3.7 4.5 5.8
Total outlays 23.1 23.1 23.1 23.7 25.2 27.1
Deficit (-)d -5.6 -6.1 -5.3 -5.8 -7.0 -8.5
Debt held by the public at the end of the period 99 102 107 116 141 172
Addendum:
Social Security
Revenuese 4.6 4.6 4.6 4.6 4.6 4.5
Outlaysf 5.2 5.3 5.5 5.8 6.0 6.0
Contribution to the deficit (-)d,g -0.6 -0.7 -0.9 -1.2 -1.4 -1.5
Medicare
Revenuese 1.5 1.5 1.5 1.6 1.7 1.8
Outlaysb,f 3.9 3.9 4.2 4.9 6.0 6.8
Offsetting receipts -0.7 -0.7 -0.8 -0.9 -1.2 -1.5
Contribution to the deficit (-)d,g -1.7 -1.7 -1.9 -2.4 -3.1 -3.6
GDP at the end of the period (trillions of dollars) 28.2 29.3 34.4 41.6 59.8 85.2

This table satisfies a requirement specified in section 3111 of S. Con. Res. 11, the Concurrent Resolution on the Budget for Fiscal Year 2016.
b. When October 1 (the first day of the fiscal year) falls on a weekend, certain payments that would have ordinarily been made on that day are instead made at
c. Consists of outlays for Medicare (net of premiums and other offsetting receipts), Medicaid, and the Children’s Health Insurance Program, as well as subsidies
for health insurance purchased through the marketplaces established under the Affordable Care Act and related spending.
d. When outlays exceed revenues, the result is a deficit. Values in this row were calculated by subtracting outlays from revenues; thus, negative values indicate
deficits or contributions to deficits.
e. Includes payroll taxes other than those paid by the federal government on behalf of its employees; those payments are intragovernmental transactions. Also
includes income taxes paid on Social Security benefits, which are credited to the trust funds.
f. Does not include outlays related to the administration of the program, which are discretionary. For Social Security, outlays do not include intragovernmental
offsetting receipts stemming from the employer’s share of payroll taxes paid to the Social Security trust funds by federal agencies on behalf of their employees.
g. The contribution to the deficit shown in this row differs from the change in the trust fund balance for the associated program. It does not include
intragovernmental transactions, interest earned on balances, or outlays related to the administration of the program.
Box 1-3 .
CBO’s Long-Term Budget Projections

The Congressional Budget Office’s long-term projections to the fiscal and economic outlook. It could also cause lawmakers
follow the agency’s 10-year baseline budget projections and to feel more constrained in their policy choices.
then extend the concepts underlying them for an additional
Spending
20 years—in this case, through 2054.1 Those projections are
Total outlays increase from 24.1 percent of GDP in 2034 to
inherently uncertain because budgetary outcomes are hard to
27.9 percent in 2054 in CBO’s projections. Rising interest costs
predict, particularly over the long run. That said, even if condi-
and growth in spending for the major health care programs,
tions were more favorable than CBO projects, federal debt held
particularly Medicare, are significant drivers of that increase.2
by the public measured in relation to the size of the economy
Rising interest rates and mounting debt cause net interest
would almost certainly be much greater in 30 years than it is
costs to increase from 2034 to 2054, from 3.9 percent of GDP
today if current laws remain unchanged.
to 6.5 percent.
Deficits and Debt
Noninterest outlays—that is, all spending other than net
In CBO’s projections, federal deficits grow from 6.1 percent
outlays for interest—are projected to increase from 20.2 per-
of gross domestic product (GDP) in 2034 to 9.1 percent of
cent of GDP to 21.4 percent over the 20-year period. Manda-
GDP in 2054 because outlays start off larger than revenues
tory spending increases from 15.1 percent of GDP in 2034 to
in 2034 and increase faster than revenues over the subse-
16.5 percent in 2054. Discretionary spending is projected to
quent 20 years. Primary deficits—that is, deficits excluding net
decline from 5.1 percent of GDP in 2034 to 4.9 percent in 2038
outlays for interest—grow from 2.2 percent of GDP in 2034 to
and is assumed to remain constant thereafter.
2.6 percent in 2054, far less than total deficits grow.
Revenues
As a result of mounting deficits, federal debt held by the public rises
Revenues increase from 17.9 percent of GDP in 2034 to 18.8 per-
from 116 percent of GDP in 2034 to 172 percent of GDP in 2054.
cent in 2054 in CBO’s projections. Receipts from individual
Such soaring debt would slow economic growth, push up interest
income taxes rise in relation to GDP over that period as real
payments to foreign holders of U.S. debt, and pose significant risks
2. Spending for the major health care programs consists of outlays for Medicare,
1. For years after 2034, CBO has updated its long-term population, economic, Medicaid, and the Children’s Health Insurance Program, as well as premium
and revenue projections. In place of a full update, though, the agency has tax credits for health insurance purchased through the marketplaces
used a simplified approach to project spending in those years. CBO expects established under the Affordable Care Act and related spending. The
to publish fully updated long-term projections later in 2024. premium tax credits subsidize the purchase of health insurance.
Continued
eliminating those provisions would lead households and has ever been—and be on track to rise even further (see
businesses to modify their behavior in ways that would Figure 1-2 on page 15).
lessen the effect on revenues.
Measured as a percentage of GDP, federal debt over the
The Long-Term Outlook for 2034–2053 period is smaller in CBO’s current projec-
the Budget tions than it was in the agency’s June 2023 projections.30
Beyond the coming decade, the United States faces a Deficits over that period are also now smaller than the
challenging fiscal outlook. In CBO’s projections, deficits agency projected last June. (See Box 1-3 for details about
grow in relation to GDP as increases in outlays (largely CBO’s long-term budget projections.)
driven by rising interest costs and greater spending
for the major health care programs) outpace increases Uncertainty of Budget Projections
in revenues. Those growing deficits boost federal debt CBO’s baseline budget projections are intended to
dramatically over the next three decades (see Table 1-9 show what would happen to federal spending, revenues,
on page 39). In 2054, debt held by the public is pro-
jected to reach 172 percent of GDP—far larger than it 30. Congressional Budget Office, The 2023 Long-Term Budget
Outlook (June 2023), www.cbo.gov/publication/59014.
Box 1-3. Continued
CBO’s Long-Term Budget Projections

income growth (that is, growth adjusted to remove the effects Changes to Spending. Measured as a percentage of GDP,
of inflation) pushes an increasing share of income into higher total outlays over the 2034–2053 period are 0.9 percentage
tax brackets—a process known as real bracket creep. Revenues points lower, on average, in CBO’s current projections than
from other sources, on net, change little from 2034 to 2054. they were in the agency’s June 2023 projections. Noninterest
outlays measured as a percentage of GDP are also lower by
Changes to CBO’s Long-Term Projections
0.9 percentage points, on average, in the agency’s current
Since June 2023
projections than they were in last year’s.
In relation to the size of the economy, federal debt is now
projected to be smaller throughout the 2034–2053 period than In CBO’s projections and in relation to the size of the economy,
it was projected to be when CBO last published its long-term the change in total outlays is largely driven by reductions in
budget projections. All told, that difference is the net result of a discretionary spending throughout the 2034–2053 period and
decrease, measured as a percentage of GDP, in CBO’s projec- changes in net interest costs. Measured as a percentage of
tions of spending—primarily driven by changes in discretionary GDP, net interest costs are higher from 2034 to 2046 and then
spending and net interest costs—and a reduction in projected lower from 2047 to 2053 than they were in last year’s projec-
revenues, measured as a percentage of GDP, throughout tions. That is, relative to last year’s projections, increases in net
that period. (Nominal GDP, which has not been adjusted to interest costs measured as a percentage of GDP partially offset
remove the effects of inflation, is now projected to be higher the decreases in discretionary spending in the initial years of
than it was previously projected to be, so a given dollar amount the period. By the end of the 20-year period, discretionary
of spending, revenues, deficits, or debt equals a smaller per- spending and net interest costs are both lower in this year’s
centage of GDP in the current projections than it would have projections than in last year’s.
equaled in last year’s projections.)
Changes to Revenues. CBO’s current projections of
Changes to Deficits and Debt. Throughout the 2034– revenues measured as a percentage of GDP for the 2034–
2053 period, both total federal deficits and primary deficits, mea- 2053 period are 0.2 percentage points lower, on average, than
sured as a percentage of GDP, are now projected to be smaller its June 2023 projections. The agency revised downward its pro-
(by an average of 0.7 percentage points each) than they were in jections of receipts from individual income taxes for several rea-
June 2023’s projections. As a result of changes to deficits, federal sons; the largest change arises because CBO now projects that
debt as a percentage of GDP is now projected to be lower and the amount of interest paid on mortgages, which is deductible
to grow more slowly throughout the 2034–2053 period than in for taxpayers who itemize, is higher than it projected in June.
last year’s projections. By 2053, that measure is projected to be
12 percentage points lower than it was last year.
deficits, and debt if current laws governing spending and part on the agency’s economic projections, which include
taxes generally remained the same. Changes to laws— forecasts for wage growth, interest rates, inflation, and
particularly those affecting fiscal policies—could lead economic growth. Actual outcomes for those variables are
to budgetary outcomes that diverged considerably from likely to differ from CBO’s projections.
those in the baseline.
A comparison of CBO’s past projections with actual out-
Even if federal laws remained unchanged for the next comes indicates the magnitude of the uncertainty of the
decade, actual budgetary outcomes would differ from agency’s budget projections.31 On the basis of an analysis
CBO’s baseline projections because of unanticipated of its past projections, CBO estimates that there is an
changes in economic conditions and in other factors (such
as administrative actions, regulatory changes, and judicial 31. Evaluations of the accuracy of CBO’s budget projections are
decisions) that affect federal spending and revenues. For available at www.cbo.gov/topics/budget/accuracy-projections.
Up-to-date data on the history of CBO’s projections and actual
example, CBO’s projections of outlays and revenues—and outcomes for deficits, debt, outlays, and revenues are available at
therefore its projections of deficits and debt—depend in https://github.com/US-CBO/eval-projections.
Figure 1-7 .
Uncertainty of CBO’s Baseline Projections of the Budget Deficit

Percentage of GDP
Deficit
In CBO’s baseline
10 projections, the deficit in
2029 is 5.4 percent of GDP.
There is a roughly two-thirds
chance that the deficit in
5 that year would be between
2.9 percent and 7.9 percent
of GDP, CBO estimates.
Two-thirds chance
0
2004 2009 2014 2019 2024 2029
The shaded area around CBO’s baseline deficit projection is based on the errors in CBO’s one-, two-, three-, four-, five-, and six-year projections of the deficit
for fiscal years 1985 through 2023. Actual outcomes will be affected by legislation enacted in future years. The effects of future legislation are not reflected in
this figure.
When outlays exceed revenues, the result is a deficit. In this figure, deficits and surpluses were calculated by subtracting revenues from outlays; thus, positive
values indicate deficits. When outlays are subtracted from revenues, as recorded in the federal budget and in the tables in this chapter, negative values indicate
deficits, and positive values indicate surpluses.
approximately two-thirds chance that, under current law, under current law, there is a roughly two-thirds chance
the deficit in 2025 would be between 5.0 percent and that the deficit for that year would be between 2.9 per-
7.1 percent of GDP (see Figure 1-7). (The baseline pro- cent and 7.9 percent of GDP. (The baseline projection
jection of the deficit for that year is 6.1 percent of GDP.) for that year is 5.4 percent of GDP.) The range of out-
The range in 2029 would be wider: CBO estimates that, comes would be wider still in later years.
Chapter 2: The Economic Outlook
Overview Real GDP growth is projected to increase to 2.2 percent

The projections for the federal budget described in in 2025 after the Federal Reserve responds to weaker
Chapter 1 are based in part on recent economic develop- economic conditions in the middle of 2024 by lowering
ments and the Congressional Budget Office’s projections interest rates. CBO projects that growth in 2025 will be
of how the economy will perform in coming years. In supported by increased economic activity in sectors sen-
calendar year 2023, the U.S. economy grew faster than sitive to interest rates, such as residential investment and
it did in 2022, even as inflation slowed. In addition, the consumer spending. CBO also projects that high rates
Federal Reserve raised the federal funds rate to its highest of net immigration through 2026 will support economic
level since 2001. (That rate, which financial institutions growth, adding an average of about 0.2 percentage
charge each other for overnight loans of their monetary points to the annual growth rate of real GDP over the
reserves, affects interest rates throughout the economy.) 2024–2034 period.
Economic growth is projected to slow in 2024, accom- Beyond 2026, CBO’s projections of real GDP are driven
panied by increased unemployment and lower inflation. mainly by its projections of real potential GDP (the
CBO expects the Federal Reserve to respond to slowing maximum sustainable output of the economy). CBO
economic activity by reducing interest rates, starting expects real GDP to grow at an average rate of 2.0 per-
in the middle of the calendar year. Economic growth cent a year from 2027 to 2034—similar to the average
is expected to rebound in 2025 and then moderate in growth rate of potential GDP over the past 20 years.
later years. CBO projects that a surge in the rate of net
immigration that began in 2022 will continue through The Labor Market
2026. That rise in the number of people who enter the As economic growth slows in 2024, the demand for
United States minus the number who leave is projected labor is expected to soften, slowing the growth of payroll
to expand the labor force and increase economic growth. employment (the number of employees on businesses’
payrolls). The unemployment rate, which was 3.7 per-
CBO’s economic projections reflect developments in the cent in the fourth quarter of 2023, is projected to rise
economy as of December 5, 2023, and the assumption to 4.4 percent in the fourth quarter of 2024 and then
that current laws governing federal taxes and spending remain at 4.4 percent, on average, from 2025 to 2034
generally remain in place. The projections also incorpo- (see Table 2-1). The labor force is expected to keep grow-
rate the effects of the Fiscal Responsibility Act of 2023 ing at a moderate pace through 2026 as continued high
(Public Law 118-5), which limits federal funding for dis- rates of net immigration more than offset a projected
cretionary programs over the next two years, as described decline in the rate of labor force participation stemming
in Chapter 1. from weaker demand for workers and the rising average
age of the population (referred to as the aging of the
Gross Domestic Product population).
Economic output, as measured by the nation’s gross
domestic product (GDP), grew by 3.1 percent in 2023 Inflation
in real terms (that is, adjusted to remove the effects of The rate at which overall prices rise each year is expected
inflation). The growth of real GDP is projected to slow to slow further in 2024—to a rate roughly in line with
to 1.5 percent in 2024 (see Figure 2-1) as consumer the Federal Reserve’s long-run goal of 2 percent—and
spending increases more slowly and investment in pri- then tick up in 2025, before declining slightly. CBO
vate nonresidential structures, such as offices, declines. projects that inflation as measured by the price index for
(Unless this report indicates otherwise, all annual growth personal consumption expenditures (PCE), the Federal
rates are measured from the fourth quarter of one calen- Reserve’s preferred measure of inflation, will fall from
dar year to the fourth quarter of the next year.) 2.9 percent in 2023 to 2.1 percent in 2024, reflecting
Figure 2-1 .
Growth of Real GDP

Percent
The growth of economic
output is projected to slow
4
in 2024 as the growth of
consumer spending slows
2 and as business investment
in nonresidential structures
declines. Economic
0 growth is projected to
increase in 2025 after the
Federal Reserve responds
−2
to weaker economic
conditions in 2024 by
−4 lowering interest rates.
2002 2006 2010 2014 2018 2022 2026 2030 2034
Data sources: Congressional Budget Office; Bureau of Economic Analysis. See www.cbo.gov/publication/59710#data.
Real GDP is nominal GDP that has been adjusted to remove the effects of changes in prices. Growth of real GDP is measured from the fourth quarter of one
calendar year to the fourth quarter of the next year.
Values for 2000 to 2023 reflect data available from the Bureau of Economic Analysis as of late January 2024. Those data contain values for the fourth quarter of
2023, which were not available when CBO developed its current projections.
softer demand for labor and slower increases in rents. 2.9 percent by mid-2027 and stay roughly steady in later
Inflation is projected to tick up to 2.2 percent in 2025 years. The interest rate on three-month Treasury bills is
as factors that have tended to limit price increases for projected to follow a similar path.
food and energy recede and as stronger economic activity
modestly increases the pressure on prices for some types Longer-term interest rates, such as the rate on 10-year
of services. CBO projects that inflation will decline to Treasury notes, are typically higher than short-term
2.1 percent in 2026 and then average 2.0 percent a year rates. Although that was not the case in early 2024,
through 2034. CBO projects that the 10-year rate will increase relative
to short-term rates, and the spread between them will
Interest Rates gradually return to its long-run average. The 10-year rate,
Short-term interest rates are expected to remain stable which was 4.4 percent in the fourth quarter of 2023, is
through the first quarter of 2024, decline gradually projected to rise to 4.8 percent in the fourth quarter of
through the middle of 2027, and remain roughly steady 2024, before falling to 3.7 percent in the fourth quarter
thereafter. CBO expects that after holding the federal of 2026. After that, the 10-year rate is expected to rise
funds rate between 5.25 percent and 5.50 percent gradually to 4.1 percent by 2034.
through the first quarter of 2024, the Federal Reserve
will begin reducing that rate in the second quarter of Income
2024 in response to slowing inflation and rising unem- As the demand for labor softens, the growth of employee
ployment.1 The federal funds rate is projected to fall to compensation is projected to slow over the 2024–2034
period. GDP is expected to grow more slowly than com-
1. The Federal Reserve sets a target range for the federal funds rate pensation during that period. As a result, labor income
that is 0.25 percentage points (25 basis points) wide. In this as a percentage of GDP is projected to increase from
report, the term “federal funds rate” refers to the effective federal
55.9 percent at the end of 2023 to 57.0 percent by the
funds rate, an interest rate that the Federal Reserve calculates as
a volume-weighted median of rates on overnight federal funds end of 2027 and then remain generally stable.
transactions.
CHAPTER 2: THE ECONOMIC OUTLOOK THE BUDGET AND ECONOMIC OUTLOOK: 2024 TO 2034 45
Table 2-1 .
CBO’s Economic Projections for Calendar Years 2024 to 2034

Percent
Annual average
Actual, 2027– 2029–
2023 2024 2025 2026 2028 2034
Gross domestic product
Reala 3.1 1.5 2.2 2.2 2.1 1.9
Nominal 5.8 3.5 4.3 4.1 4.1 3.9
Inflation
PCE price index 2.7 2.1 2.2 2.1 2.0 1.9
Core PCE price indexb 3.2 2.4 2.3 2.2 2.0 2.0
Consumer price indexc 3.2 2.5 2.5 2.2 2.2 2.2
Core consumer price indexb 4.0 2.9 2.6 2.4 2.3 2.3
GDP price index 2.6 1.9 2.0 1.9 1.9 1.9
Employment cost indexd 4.3 3.6 3.4 3.3 3.1 3.0
Payroll employment (net monthly change, in thousands)e 229 84 178 104 63 51
Fourth-quarter level
Unemployment rate 3.7 4.4 4.4 4.4 4.4f 4.4g
Change from year to year
Gross domestic product
Reala 2.5 1.8 2.0 2.2 2.1 1.9
Nominal 6.3 3.9 4.0 4.2 4.1 3.9
Inflation
PCE price index 3.7 2.2 2.2 2.1 2.0 1.9
Core PCE price indexb 4.1 2.5 2.4 2.2 2.0 2.0
Consumer price indexc 4.1 2.6 2.5 2.3 2.2 2.2
Core consumer price indexb 4.8 3.1 2.7 2.5 2.3 2.3
GDP price index 3.6 2.1 2.0 2.0 1.9 1.9
Employment cost indexd 4.6 3.9 3.5 3.3 3.1 3.0
Annual average
Interest rates
Effective federal funds rateh 5.0 5.1 4.1 3.3 2.9 2.9
Domestic corporate profitsi 9.9j 9.7 9.6 9.4 9.2 9.0
Current account balance (percentage of GDP)k -3.1j -3.4 -3.8 -3.8 -3.7 -3.7
Data sources: Congressional Budget Office; Bureau of Economic Analysis; Bureau of Labor Statistics; Federal Reserve. See www.cbo.gov/publication/59710#data.
Values for 2023 reflect data available from the Bureau of Economic Analysis and the Bureau of Labor Statistics as of late January 2024. Those data contain
values for the fourth quarter of 2023, which were not available when CBO developed its current projections.
GDP = gross domestic product; PCE = personal consumption expenditures.
a. Real values are nominal values that have been adjusted to remove the effects of changes in prices.
b. Excludes prices for food and energy.
c. The consumer price index for all urban consumers.
d. The employment cost index for wages and salaries of workers in private industry.
e. The average monthly change is calculated by dividing by 12 the net change in nonfarm payrolls from the fourth quarter of one calendar year to the fourth
quarter of the next year.
f. Value for the fourth quarter of 2028.
g. Value for the fourth quarter of 2034.
h. The median interest rate that financial institutions charge each other for overnight loans of their monetary reserves, weighted by loan volume.
i. Adjusted to exclude the effects of tax rules on depreciation allowances and the effects of changes in prices on the value of inventories.
j. Estimated value for 2023.
k. Represents net exports of goods and services, net capital income, and net transfer payments between the United States and the rest of the world.
Domestic corporate profits, which have been elevated economic growth resulting from higher projected interest
in recent years, are projected to grow more slowly than rates is partly offset by an increase in economic activity
GDP over the 2024–2027 period because of increases over the 2024–2027 period stemming from greater pro-
in interest payments and employee compensation. As jected net immigration. From 2028 to 2033, real GDP
a result, domestic corporate profits are projected to is now projected to grow at a higher average rate than
decrease from 9.8 percent of GDP at the end of 2023 CBO forecast last February (2.0 percent a year versus
to 9.2 percent by the end of 2027 and remain roughly 1.8 percent), mainly because of faster projected growth
steady as a percentage of GDP thereafter. in output per worker and the larger labor force.
Uncertainty About the Economic Outlook CBO has lowered its projection of the average unem-
CBO develops its projections so they fall in the middle ployment rate over the 2024–2027 period (to 4.3 per-
of the likely range of outcomes under current law. Those cent from 4.7 percent) because of stronger-than-expected
projections are highly uncertain, and many factors could economic growth in 2023. That stronger growth pushed
lead to different outcomes. That uncertainty arises from the unemployment rate in the fourth quarter of 2023
various domestic factors as well as from developments below what CBO forecast last February. Although the
outside the United States. unemployment rate is projected to rise in 2024 as the
economy slows, it is expected to be lower, on average,
In the short run, key sources of uncertainty include the than in CBO’s previous projections. After 2027, CBO’s
projected paths for consumer spending, inflation, and projections of the unemployment rate are roughly the
interest rates. Consumer spending could grow faster than same as they were last February.
CBO anticipates, leading to stronger economic growth;
in addition, inflation could fall more slowly than CBO The average rate of participation in the labor force is
projects, which could affect the outlook for interest rates now projected to be higher from 2024 through 2033
and income growth. Beyond the short run, important than CBO projected last February (62.0 percent ver-
areas of uncertainty about the economy include the pace sus 61.7 percent). That increase results partly from the
of advances in technology, the strength of the demand effects of upward revisions to CBO’s projections of net
for Treasury securities from U.S. and foreign investors, immigration from 2022 through 2026.
and the size of the U.S. population.
CBO’s current projections of inflation are mixed relative
Comparison With CBO’s Previous to its February 2023 projections: lower in some cases
Economic Projections and higher in others. Prices increased less in 2023 than
Real GDP grew more in 2023 than CBO forecast in CBO had anticipated, even though economic growth
February 2023, when it published its previous set of was stronger than expected. Inflation in 2024 is now
11-year economic projections.2 That economic strength projected to be slightly lower than CBO forecast last
was driven by more robust growth of consumer spending, February. For 2025, CBO has reduced its projection of
business investment, and exports than CBO had expected. inflation as measured by the growth of the PCE price
index but has slightly increased its projection of another
CBO is now projecting a lower average rate of economic measure of inflation, the growth of the consumer price
growth from 2024 to 2027 than it did last February index for all urban consumers (CPI-U). The reason for
(2.0 percent a year versus 2.4 percent), largely because of the difference is that the CPI-U places greater weight on
slower projected growth in sectors of the economy that the cost of shelter than the PCE price index does, and
are sensitive to interest rates, such as consumer spending, CBO now expects shelter costs to rise more in 2025 than
investment, and net exports. The downward revision to previously forecast because of faster growth in home
prices.
2. Congressional Budget Office, The Budget and Economic Outlook:
2023 to 2033 (February 2023), www.cbo.gov/publication/58848. Short-term interest rates are expected to be higher in
CBO published an update to its February 2023 economic 2024 and 2025 than CBO forecast last February. That
forecast in July, but that update contained only three years change reflects the stronger-than-anticipated economic
of projections and thus does not provide a complete basis for activity in 2023, which led the Federal Reserve to raise
comparison with the current projections. See Congressional
Budget Office, An Update to the Economic Outlook: 2023 to 2025
the target range for the federal funds rate higher than
(July 2023), www.cbo.gov/publication/59258. CBO had projected. After 2027, both short-term and
long-term interest rates are now expected to be slightly slightly in 2023—from 3.5 percent at the end of 2022
higher than previously projected. to 3.7 percent in December 2023—as the labor force
expanded more quickly than employment did.3
Projections of nominal labor income over the 2024–
2027 period are largely unchanged since last February. The overall rate of participation in the labor force
CBO has increased its forecast of labor income after increased in 2023, mainly because of strong growth in
2027, mainly because of higher projections of employ- the participation of workers ages 25 to 54. The labor
ment. In addition, corporate profits are now projected to force participation rate of those prime-age workers now
be larger than previously forecast; that change is consis- exceeds its prepandemic peak. The participation rate of
tent with recent revisions by the Bureau of Economic workers age 55 or older has not fully recovered from its
Analysis (BEA) to data about past profits. large drop in the early months of the pandemic.
Comparison With Other Total nonfarm payroll employment included roughly

Economic Projections 1.3 million more jobs in 2023 than CBO projected for
CBO’s projections of real GDP growth are roughly in that year in January 2020, just before the pandemic.
line with those of outside forecasters. Its projections of That greater-than-expected employment resulted from a
interest rates on 10-year Treasury notes over the next year larger population, a higher rate of labor force participa-
and a half are higher than those of most other forecasters. tion among prime-age workers, and a lower unemploy-
ment rate than CBO anticipated in January 2020.
Recent Economic Developments
The U.S. economy grew strongly in 2023, following The number of job openings per unemployed worker
modest growth in 2022. That acceleration was propelled decreased in 2023, although it remained larger than its
by stronger growth of consumer spending and nonresi- prepandemic average. That decrease contributed to a
dential investment. Inflation slowed in 2023—because slowdown in the growth of compensation.
of looser constraints on the supply of goods affected
by pandemic-related disruptions and slower growth of Inflation and Interest Rates
shelter-related prices—but remained above the Federal Although inflation slowed significantly in 2023, it
Reserve’s long-run goal. Responding to elevated inflation, remained higher than the Federal Reserve’s long-run
the central bank continued raising the federal funds rate, goal of 2 percent. Inflation as measured by the growth
which reached its highest level in 22 years. The growth of of the PCE price index declined from 5.9 percent in
the labor force increased, employment grew at a strong 2022 to 2.7 percent in 2023, while the annual growth
pace, the unemployment rate hovered near its 60-year of the CPI-U dropped from 7.1 percent to 3.2 percent.
low for much of 2023, and the number of job vacancies By comparison, PCE inflation averaged 1.5 percent a
remained high. year from 2010 to 2019, and CPI-U inflation averaged
1.7 percent. Large price increases in 2023 were mostly
Output and the Labor Market concentrated in the service sector; many goods experi-
Following growth of 0.7 percent in 2022, real GDP grew enced small increases. The PCE price index for goods
by 3.1 percent in 2023. Increases in consumer spending was unchanged in 2023, whereas the index for services
contributed 1.8 percentage points to that 3.1 percent rose by 4.1 percent.
growth rate, and increases in government spending con-
tributed 0.7 percentage points. A slowdown in inventory Some factors that had fueled inflation in 2022, such as
investment by businesses subtracted 0.3 percentage pressures on supply chains and steep increases in home
points from GDP growth in 2023. prices, eased during 2023. In the first half of the year,
Demand for labor remained strong in much of 2023; 3. The labor force consists of people age 16 or older in the
at the same time, the supply of labor grew steadily. civilian noninstitutionalized population who have jobs or
Nonfarm payroll employment increased by an average of who are unemployed (available for work and either seeking
more than 229,000 jobs per month in 2023, ending the work or expecting to be recalled from a temporary layoff). The
year about 4.7 million jobs (or roughly 3 percent) higher unemployment rate is the percentage of the labor force that is
unemployed. The labor force participation rate is the percentage
than its prepandemic peak in February 2020. Despite of the civilian noninstitutionalized population age 16 or older
the increase in employment, the unemployment rate rose that is in the labor force.
the PCE price index grew at an average annual rate of average of about 0.2 percentage points to the annual
3.3 percent, driven by large increases in the prices of growth rate of real GDP during the 2024–2034 period.
shelter services, services other than shelter and energy, From 2026 to 2034, real GDP is projected to grow by
and motor vehicles.4 In the second half of 2023, PCE 2.0 percent a year, on average, roughly in line with the
inflation declined to an average annual rate of 2.1 per- growth of aggregate supply (the total productive capacity
cent as prices for motor vehicles and various services of the economy, which depends on the supplies of labor,
began to grow more slowly. capital, and technology).
In response to higher inflation than its long-run goal, CBO constructs its economic projections by focusing on
the Federal Reserve increased the federal funds rate the interaction in the economy between aggregate supply
from 4.5 percent in the first quarter of 2023 to 5.3 per- and aggregate demand—which consists of consumer
cent during the second half of the year. As a result, in spending, business fixed investment, inventory invest-
December 2023, the federal funds rate remained at its ment, residential investment, government spending, and
highest level since February 2001. net exports. In CBO’s short-run economic projections,
which generally cover the next two to five years, fluctua-
The interest rate on 10-year Treasury notes increased tions in real GDP are determined mainly by movements
from an average of 3.8 percent in the fourth quarter of in aggregate demand, although they are also affected by
2022 to an average of 4.4 percent in the fourth quarter supply-related factors, such as immigration, taxes on
of 2023. That rate varied substantially during 2023, ris- labor, and factors that affect the cost of new investments.
ing from an average of 3.5 percent in April to an average
of 4.8 percent in October, before falling to an average of Over time, businesses are increasingly able to respond to
4.0 percent in December. changes in demand and in supply-related factors by alter-
ing their inputs to production. Thus, CBO’s economic
Projections of Gross Domestic projections for later years mainly reflect the factors
Product and Its Components that underlie aggregate supply and determine potential
In CBO’s projections—which reflect the assumption output. CBO’s assessment of potential output depends
that current laws governing federal taxes and spending on its projections of key factors of production, including
generally remain unchanged—real GDP grows modestly hours worked, the supply of capital services (the services
this year and then more strongly next year. After 2025, provided by capital assets, such as equipment, software,
the growth of real GDP stabilizes at approximately the and factories), and the pace and adoption of technologi-
same rate as the growth of potential output (the amount cal innovation in the economy.
of real GDP that can be produced if labor and capital are
employed at their maximum sustainable rates). CBO’s current economic projections reflect the
laws enacted and the policy measures taken through
Specifically, the growth of real GDP, which was 3.1 per- December 5, 2023, as well as the agency’s initial projec-
cent in 2023, is projected to slow to 1.5 percent in 2024 tions of the effects of the Fiscal Responsibility Act. CBO’s
because of weak growth in spending by consumers and projections also reflect the scheduled expiration of tempo-
governments and in investment by businesses (see Table rary provisions in the 2017 tax act (P.L. 115-97)—includ-
2-2). In 2025, stronger growth in consumer spending ing the expiration at the end of 2025 of most provisions
and investment is projected to push economic growth up affecting individual income taxes and the phaseout by the
to 2.2 percent. That increase largely reflects the stimula- end of 2026 of bonus depreciation provisions for busi-
tive effects of lower interest rates and the stronger growth nesses (which allow businesses to immediately deduct a
in residential investment that is expected to result from portion of the cost of certain investments). Those expira-
continued high rates of net immigration (see Box 2-1). tions are projected to increase the amount of taxes owed
CBO projects that the high rate of net immigration that by individuals and corporations.
began in 2022 will continue through 2026, adding an
Consumer Spending
4. Shelter services, as defined by the Bureau of Labor Statistics, In CBO’s projections, real consumer spending increases
measure the flow of housing services that housing units provide by 1.3 percent in 2024, roughly half of last year’s growth
to their occupants. The prices of such services are a component
rate, and then rebounds in 2025 to grow by 1.9 percent.
of inflation as measured by the PCE price index and the CPI-U,
whereas home prices are not included in those measures. In 2026, the growth of real consumer spending slows to
Table 2-2 .
Projected Growth of Real GDP and Its Components

Annual average
Actual, 2027– 2029–
2023 2024 2025 2026 2028 2034
Change from fourth quarter to fourth quarter (percent)
Real GDP 3.1 1.5 2.2 2.2 2.1 1.9
Components of real GDP
Consumer spending 2.6 1.3 1.9 1.6 2.1 2.3
Business fixed investmenta 4.1 2.0 3.0 3.4 3.2 2.7
Residential investmentb -0.1 5.1 10.9 10.7 2.6 -0.7
Purchases by federal, state, and local governmentsc 4.3 0.8 0.8 0.9 0.7 0.5
Federal 4.0 0.1 0.2 0.6 0.5 0.4
State and local 4.5 1.2 1.1 1.1 0.9 0.5
Exports 2.1 1.6 2.7 2.9 3.0 2.2
Imports -0.2 1.4 2.8 2.6 2.3 2.1
Addendum:
Inventory investment (billions of 2017 dollars)d -69.2 14.1 17.0 3.6 -0.3 0.2
Contributions to the growth of real GDP (percentage points)

Components of real GDP
Consumer spending 1.8 0.9 1.3 1.1 1.4 1.5
Business fixed investmenta 0.5 0.3 0.4 0.5 0.4 0.4
Residential investmentb * 0.2 0.4 0.5 0.1 *
Purchases by federal, state, and local governmentsc 0.7 0.1 0.1 0.2 0.1 0.1
Federal 0.3 * * * * *
State and local 0.5 0.1 0.1 0.1 0.1 0.1
Exports 0.2 0.2 0.3 0.3 0.3 0.2
Imports * -0.2 -0.4 -0.3 -0.3 -0.3
Inventory investmentd -0.3 0.1 0.1 * * *
Real values are nominal values that have been adjusted to remove the effects of changes in prices.
Data are annual. Changes are measured from the fourth quarter of one calendar year to the fourth quarter of the next year.
Values for 2023 reflect data available from the Bureau of Economic Analysis as of late January 2024. Those data contain values for the fourth quarter of 2023,
which were not available when CBO developed its current projections.
GDP = gross domestic product; * = between -0.05 percentage points and 0.05 percentage points.
a. Purchases of equipment, nonresidential structures, and intellectual property products.
b. Construction of single-family and multifamily structures, manufactured homes, and dormitories; spending on home improvements; and brokers’ commissions
and other ownership-transfer costs.
c. Based on the national income and product accounts.
d. The change in private inventories.
1.6 percent because of scheduled increases in individual 2023, consumer spending was partially insulated from
income taxes. Real consumer spending then grows at an rising interest rates because many people were able to
average annual rate of 2.2 percent from 2027 to 2034, con- draw on savings accumulated during the pandemic.5
sistent with the growth of potential output in those years.
5. The total amount of personal saving rose to high levels during
Credit conditions, such as interest rates and lending the pandemic, partly because financial support provided by the
standards, are expected to discourage consumer spend- government to households more than offset declines in employment
ing this year but encourage it next year. In 2022 and income and partly because households cut back on spending.
Box 2-1 .
Economic Effects of CBO’s Revised Population Projections

The size and age composition of the U.S. population are mortality rates because of a reduction in projected deaths from
important factors in the Congressional Budget Office’s COVID-19.
economic projections. CBO now projects that the population
The foreign nationals added to CBO’s current population pro-
over the next 10 years will be larger—and more concentrated
jections because of greater net immigration are projected to
among people ages 16 to 54—than it projected last year.1 Those
include a larger share of people under age 55, both male and
increases result from higher projections of net immigration (the
female, than in the overall U.S. population. In CBO’s projec-
number of people who migrate to the United States minus the
tions, 91 percent of the additional foreign nationals age 16 or
number who leave) and lower projections of mortality rates.
older who immigrate to the United States from 2022 to 2034
The changes to CBO’s population projections affect the agen- are under age 55, compared with 62 percent of the overall U.S.
cy’s projections of economic activity by increasing the overall population age 16 or older during that period. Those additional
demand for goods and services, expanding the labor force, foreign nationals include people who enter the United States
and altering productivity. A larger population is projected to lawfully through the use of parole authority and people who
put modest downward pressure on total factor productivity enter illegally.
(TFP) in the near term but moderate upward pressure on TFP
How Changes in the Projected Population
after 2027.2 CBO also estimates that the increase in population
Affect the Economy
will put downward pressure on average real wages in the near
Increases in the population boost the demand for goods, ser-
term. That effect is projected to partially reverse after 2027,
vices, and housing. They also expand the productive capacity
but average real wages are expected to be slightly lower by
of the economy by increasing the size of the labor force.
2034 than they would be otherwise.
The increases to CBO’s population projections have raised
Most of the increase in the projected population reflects larger projected consumer spending over the 2027–2033 period by
net immigration. That greater immigration is projected to boost roughly 2 percent, or 1.4 percent of GDP—and raised projected
the growth rate of the nation’s real gross domestic product residential investment (such as spending on housing construc-
(GDP) by an average of 0.2 percentage points a year from 2024 tion and home improvements) over that period by roughly
to 2034, leaving real GDP roughly 2 percent larger in 2034 10 percent, or 0.4 percent of GDP—compared with the agency’s
than it would be otherwise. Real GDP per person, however, previous projections.
would be 0.8 percent smaller in 2034 because of the increase
In addition, the larger population boosts the supply of labor.
in immigration than it would be otherwise, in CBO’s assess-
CBO now expects the labor force to have 5.2 million more
ment.
people in 2033 than the agency projected last year (see the
Population Projections figure). Most of that increase results from additional foreign
CBO now expects that the civilian population age 16 or older in nationals in CBO’s new population projections. The additional
2033 will be larger by 7.4 million people, or 2.6 percent, than foreign nationals boost the size of the labor force more slowly
the agency previously projected. Most of that increase (5.9 mil- than they boost the size of the population, in part because
lion) represents a rise in the net number of people expected of the time it takes them to obtain authorization to work.
to immigrate to the United States. The rest stems from lower The majority of that population is projected to receive work
authorization within six months of entering the United States;
1. Congressional Budget Office, The Demographic Outlook: 2024 to 2054 a minority is projected to work without authorization.
(January 2024), www.cbo.gov/publication/59697, and The Demographic
Outlook: 2023 to 2053 (January 2023), www.cbo.gov/publication/58612.
The age composition of the additional foreign nationals affects
the change in the size of the labor force. People ages 25 to 54
2. Total factor productivity is the average real output per unit of combined
tend to participate in the workforce at higher rates than people
labor and capital services, excluding the effects of business cycles. Real
values are nominal values that have been adjusted to remove the effects
in other age groups do. Thus, the larger share of younger
of changes in prices. workers—25- to 54-year-olds, as well as 16- to 24-year-olds,
Continued
Box 2-1. Continued
Economic Effects of CBO’s Revised Population Projections

who will enter their prime working age over the coming Those immigrants are expected to boost total factor productiv-
decade—is projected to increase the labor force by roughly ity through innovation. That positive effect on TFP is projected
0.9 million people by 2033 compared with what its size would to outweigh the negative effect by 2027, causing TFP to be
be if the additional foreign nationals had the same age charac- roughly 0.2 percent greater in 2034 than it otherwise would
teristics as the overall population. have been.
Increased immigration also affects the supply of goods and Increased net immigration is projected to affect average real
services by altering total factor productivity. CBO expects the wages through several channels. First, additional foreign
projected increase in immigration to reduce TFP in the near nationals are expected to work in sectors of the economy that
term and boost it in later years. pay relatively low wages, thus putting downward pressure
on average wages. Second, the projected increase in work-
The near-term effect reflects the expectation that a significant
ers reduces the amount of capital (factories and machinery)
share of additional foreign nationals will initially work in sec-
per worker, which also puts downward pressure on average
tors of the economy that have relatively low productivity, such
real wages. Both effects are expected to lessen over time as
as services, thus pushing down TFP by a small amount. That
workers gain more skills and as additional capital is built. Third,
effect is projected to partly reverse over time as immigrants
the projected increase in total factor productivity is expected to
assimilate into the labor market and gain additional skills. In
put upward pressure on wages. That effect is expected to build
addition, CBO expects that roughly 2 percent of the additional
slowly over time. By 2034, CBO estimates, the three effects
foreign nationals will be highly skilled workers employed in
combined will cause average real wages to be slightly lower
the fields of science, technology, engineering, or mathematics.
than they would have been otherwise.
CBO’s Projections of the Labor Force

Millions of people
Current projection
170
Since last year, CBO has
February 2023 projection
increased its projection of
160
the size of the labor force
in 2033 by 5.2 million
150 people. Most of that
increase results from
higher projected net
140 immigration.
0
2000 2003 2006 2009 2012 2015 2018 2021 2024 2027 2030 2033
The labor force consists of people age 16 or older in the civilian noninstitutionalized population who have jobs or who are unemployed (available for work
and either seeking work or expecting to be recalled from a temporary layoff).
Figure 2-2 .
Spending on Consumer Goods as a Share of Nominal Consumer Spending

Percent
36
34
CBO expects the share of
consumer spending on
32
Current projection goods to decline in the
coming years as people
30
gradually return to their
28
prepandemic patterns of
January 2020
projection consumption.
26
0
2002 2006 2010 2014 2018 2022 2026 2030 2034
Nominal consumer spending reflects the prices that prevail at a given time, with no adjustment to remove the effects of changes in prices. Goods’ share of
nominal personal consumption expenditures consists of nominal consumer spending on durable and nondurable goods.
In addition, the effect of tighter credit requirements in CBO expects consumer spending to continue shifting
2022 and 2023 was dampened by consumers’ historically away from goods and toward services throughout the
high average credit scores. By the end of 2023, however, 2024–2034 period as people gradually return to their
total deposits at banks and other financial institutions prepandemic patterns of consumption (see Figure 2-2).
had declined, and delinquencies on consumer loans had Before the coronavirus pandemic, spending on goods had
increased. In 2024, elevated interest rates on credit cards been gradually declining as a share of total consumption.
and consumer goods, along with stricter credit require- During the pandemic, as people reduced their spending
ments for consumer loans, are expected to put downward on in-person services, the share of consumer spending
pressure on consumer spending. The resumption of devoted to goods increased considerably. In 2023, that
student loan repayments in late 2023 (after a pandemic- share fell markedly. In CBO’s projections, spending on
era pause) is also expected to dampen the growth of goods continues to decline as a share of total consumption
consumer spending in 2024. In 2025, lower interest rates after 2023, first rapidly and then more slowly. By 2030,
are expected to boost consumer spending. the share of consumer spending devoted to goods returns
to its prepandemic trend of a gradual decline.
Other important factors in CBO’s projections of con-
sumer spending over the 2024–2034 period include con- Business Investment
ditions in the labor market, taxes, and population growth. CBO expects real business fixed investment—purchases
Unemployment is projected to increase in 2024 and 2025, of new equipment, nonresidential structures, and intel-
putting downward pressure on consumer spending. And lectual property products (such as software) by private
in 2026, people’s payments of individual income taxes companies and nonprofit institutions—to increase at
are set to increase because of the scheduled expiration of the moderate rate of 2.0 percent in 2024, restrained by
temporary provisions in the 2017 tax act. In the other slower growth of demand for businesses’ products and
direction, high rates of net immigration are projected to services. Within that category of spending, real invest-
boost consumer spending (see Box 2-1 on page 50). ment in nonresidential structures, which soared in 2023
because of increased factory construction, is expected to estimation. CBO projects that housing starts (the begin-
decline modestly this year because of high interest rates ning of construction on new residential housing units)
and weak demand for new office space. By contrast, real will average 1.7 million per year from 2026 to 2029.
investment in equipment and intellectual property prod-
ucts is expected to rise this year. Home prices (as measured by the S&P CoreLogic Case-
Shiller home price index) rose by 9.5 percent in 2020,
The growth of business investment as a whole will 19.0 percent in 2021, and 7.5 percent in 2022 because of
rebound after 2024, in CBO’s estimation. One reason is rising demand for homes and a limited inventory of exist-
that the Federal Reserve is expected to continue to lower ing homes for sale. CBO estimates that the rise in home
the federal funds rate as inflation continues to wane. prices slowed to 5.6 percent in 2023 as higher mortgage
Nominal interest rates are expected to decline more interest rates and high home prices reduced demand.
than inflation, reducing the real cost of borrowing for CBO expects the growth of home prices to slow further
businesses. Another reason is that stronger demand for over the next two years—to 4.3 percent in 2024 and
businesses’ output will encourage them to expand their 2.1 percent in 2025—before picking up in later years.
capacity. In addition, CBO expects that companies’ pur-
chases of equipment will increase as a percentage of GDP Government Purchases
to a share closer to the average over the past two decades. Total real purchases by federal, state, and local gov-
In CBO’s projections, real business fixed investment ernments grew by 4.3 percent in 2023. If current laws
grows at an average rate of 3.3 percent a year from 2025 governing federal taxes and spending generally remain
to 2027. After that, as the growth rate of GDP moves in place, those purchases will grow by 0.8 percent in
closer to the growth rate of potential GDP, the growth of 2024, CBO projects. The growth of real federal pur-
real business fixed investment slows to an average rate of chases, which was 4.0 percent in 2023, is expected to
2.7 percent a year from 2028 to 2034. slow to 0.1 percent in 2024, in part because of limits
on discretionary funding that were enacted in the Fiscal
CBO anticipates that businesses’ investment in real Responsibility Act. Those limits will constrain funding
inventories (finished goods, work in process, and materi- levels over the next two years, as described in Chapter 1.
als and supplies) will have little effect on GDP growth in Purchases by state and local governments are expected to
2024, after subtracting 0.3 percentage points from GDP grow more rapidly than purchases by the federal gov-
growth in 2023 (see Table 2-2 on page 49). In 2025, ernment. The reasons include federally funded state and
investment in inventories is expected to pick up as the local infrastructure projects (such as those for broadband
growth of GDP accelerates. internet services, transportation, public transit, and water
systems) and expected increases in the payrolls of state
Residential Investment and local governments.
CBO expects mortgage interest rates to remain high
in 2024 compared with rates in the decade before the In CBO’s projections, real government purchases grow at
pandemic. Even so, rapid population growth, pent-up an average annual rate of 0.6 percent from 2025 to 2034.
demand, and a scarcity of existing homes for sale are Federal purchases increase by an average of 0.4 percent a
expected to boost demand for new homes, leading real year during that period. Purchases by state and local gov-
residential investment to rise by 5.1 percent in 2024. ernments increase much faster in that period, by an aver-
CBO projects that the annual growth of real residential age of 0.7 percent a year, mainly because of federal assis-
investment will jump to an average of 10.8 percent in tance such as education grants provided by the American
2025 and 2026 because of declines in mortgage interest Rescue Plan Act of 2021 (P.L. 117-2) and infrastructure
rates and the increased demand for housing associated grants provided by the Infrastructure Investment and
with the large number of recent immigrants. Jobs Act (P.L. 117-58). Although those grant programs
began in 2021, their spending is projected to continue
Net immigration is projected to slow after 2024, throughout the projection period.
although it is expected to remain higher than during the
2010–2019 period. Because immigrants tend to live with Exports and Imports
family or friends initially and form their own house- CBO projects that the U.S. trade deficit (the gap between
holds gradually, high rates of immigration from 2022 the value of the United States’ imports and the value of
to 2026 will continue to stimulate construction of new its exports) will remain roughly steady as a percentage
homes during the second half of the 2020s, in CBO’s of GDP in 2024, increase slightly in 2025, and decline
gradually relative to GDP thereafter. In 2024, the trade as the pace of foreign economic growth returns to its
deficit is projected to equal 2.8 percent of GDP, the same prepandemic trend and the weakening dollar makes U.S.
percentage as in 2023, as modest growth of exports is gen- exports more competitive in international markets, real
erally offset by weak growth of imports. Both exports and exports will grow at a moderate rate, averaging about
imports will grow at a more robust pace in 2025, CBO 2.9 percent a year from 2025 to 2028, CBO projects.
projects, but imports will grow slightly faster than exports,
increasing the trade deficit to 2.9 percent of GDP. Imports. The growth of imports was unusually weak
in 2023 as U.S. consumers shifted their spending away
From 2026 to 2034, the trade deficit is projected to from goods (many of which are produced abroad) and
gradually shrink, mainly because of stronger growth of toward services (more of which are produced domes-
exports, supported by a weakening dollar and improved tically). CBO projects that slow growth of consumer
economic growth among major U.S. trading partners. spending and domestic investment will limit the growth
During that period, nominal export growth is projected of real imports to 1.4 percent in 2024. The following
to average 4.2 percent a year, nominal import growth year, as growth of consumer spending and investment
is expected to average 3.9 percent a year, and the trade increases, the growth of real imports is projected to
deficit is expected to decline from 2.9 percent of GDP rise to 2.8 percent. After 2025, the growth rate of real
to 2.6 percent. imports will moderate, averaging 2.2 percent a year from
2026 to 2034, CBO projects.
Value of the Dollar. CBO’s projections of the flow
of exports and imports are influenced by its projec- Potential Output
tions of the foreign exchange value of the U.S. dollar. Although CBO’s economic projections for the next
After remaining generally stable throughout 2023, the several years depend strongly on expected changes in
exchange value of the dollar will gradually decrease from the overall demand for goods and services, the agency’s
2024 to 2034, CBO projects.6 That projection reflects projections for the rest of the 2024–2034 period are fun-
CBO’s expectation that interest rates in countries that are damentally determined by its assessment of key inputs to
major U.S. trading partners will rise relative to projected potential GDP. Those inputs include the potential num-
interest rates in the United States, causing the value of the ber of workers in the labor force, the flow of productive
dollar to fall against the currencies of those trading part- services from the nation’s stock of capital assets, and the
ners. In all, CBO projects that the foreign exchange value potential productivity of labor and capital.
of the dollar will decline by approximately 13 percent
between the first quarter of 2024 and the end of 2034. In CBO’s projections, real potential GDP grows at an
average rate of 2.2 percent a year from 2024 to 2028—
Exports. Real exports are expected to grow slowly this slightly higher than the average rate since the business
year, by only 1.6 percent. One reason is the expected cycle peak in 2007—and then grows at an average rate
weakness in economic conditions abroad, which will of 1.9 percent a year from 2029 to 2034 (see Table 2-3).
reduce international demand for U.S. goods and services. The higher growth rate of potential GDP over the next
CBO projects that the real economic output of major five years stems mainly from rapid growth in the labor
U.S. trading partners, which increased by 2.0 percent force, reflecting a surge in the rate of net immigration
in 2023, will grow by 1.8 percent in 2024.7 After 2024, from 2022 to 2026 compared with recent years. Since
2008, the potential labor force has grown by 0.6 percent
6. CBO’s measure of the exchange value of the U.S. dollar is an a year, on average. CBO projects that the potential labor
export-weighted average of exchange rates between the dollar force will grow at an average annual rate of 0.9 percent
and the currencies of leading U.S. trading partners.
from 2024 to 2028 and 0.4 percent from 2029 to 2034.
7. The projected decline in the economic growth of major U.S. The productivity of the potential labor force (which
trading partners in 2024 results mostly from slower projected equals real potential GDP divided by the size of the
growth in China, Japan, and Mexico. CBO projects that
potential labor force) is projected to grow by an average
economic growth in China will slow in 2024 because of
continued weakness in consumer spending and the real estate of 1.2 percent a year from 2024 to 2028 and 1.5 percent
sector. Economic growth in Japan is expected to weaken this a year from 2029 to 2034 (see Figure 2-3).
year as export growth moderates after being unexpectedly strong
last year. In Mexico, weaker growth of investment is expected to The growth rate of real GDP is projected to decline
dampen economic growth in 2024. CBO expects those factors to after 2025 and converge toward the growth rate of real
subside in 2025 and later years, bringing the growth rate of major
U.S. trading partners back to its long-term trend.
potential GDP. By the end of 2026, the output gap (the
Table 2-3 .
Key Inputs in CBO’s Projections of Real Potential GDP

Percent
Projected average
Average annual growth annual growth
Overall, Overall,
1950– 1974– 1982– 1991– 2002– 2008– 1950– 2024– 2029– 2024–
1973 1981 1990 2001 2007 2023 2023 2028 2034 2034
Overall economy
Real potential GDPa 4.0 3.1 3.2 3.2 2.4 1.9 3.1 2.2 1.9 2.0
Potential labor forceb 1.6 2.4 1.6 1.2 1.0 0.6 1.4 0.9 0.4 0.6
Potential labor force productivityc 2.3 0.7 1.6 2.0 1.4 1.3 1.7 1.2 1.5 1.4
Nonfarm business sector

Real potential output 4.1 3.5 3.5 3.7 2.5 2.2 3.4 2.5 2.2 2.3
Potential hours worked 1.4 2.2 1.7 1.3 0.1 0.7 1.3 0.9 0.5 0.7
Capital servicesd 3.8 3.7 3.5 3.9 2.8 2.5 3.4 2.3 2.4 2.3
Potential total factor productivitye 1.8 0.7 1.1 1.5 1.4 0.9 1.4 1.1 1.1 1.1
Contributions to the growth of real
potential output (percentage points)
Potential hours worked 1.0 1.5 1.1 0.9 0.1 0.5 0.8 0.6 0.3 0.5
Capital servicesd 1.2 1.2 1.1 1.3 0.9 0.8 1.1 0.8 0.8 0.8
Potential total factor productivitye 1.8 0.7 1.1 1.5 1.4 0.9 1.4 1.1 1.1 1.1
Total contributions 4.0 3.4 3.4 3.7 2.5 2.2 3.3 2.4 2.2 2.3
Potential labor productivityf 2.6 1.2 1.7 2.4 2.3 1.5 2.1 1.5 1.8 1.7

The table shows compound annual growth rates over the specified periods. Those rates are calculated from the fourth quarter of the year immediately
preceding each period to the fourth quarter at the end of that period.
a. CBO’s estimate of the amount of real GDP that can be produced if labor and capital are employed at their maximum sustainable rates.
b. CBO’s estimate of how big the labor force would be if economic output and other key variables were at their maximum sustainable amounts.
c. The ratio of real potential GDP to the potential labor force.
d. The services provided by capital goods (such as computers and other equipment) that constitute the actual input in the production process.
e. The average real output per unit of combined labor and capital services, excluding the effects of business cycles.
f. The ratio of potential output to potential hours worked in the nonfarm business sector.
difference between actual and potential GDP, expressed is projected to grow at an average rate of 2.3 percent a
as a percentage of potential GDP) narrows to ‒0.5 per- year over the 2024–2034 period. About 1.1 percentage
cent. It remains at that percentage thereafter, consistent points of that growth rate are attributable to growth
with the long-term relationship between actual and of the sector’s potential total factor productivity (the
potential output. From 2029 to 2034, the growth of real average real output per unit of combined labor and
GDP is projected to average 1.9 percent a year, the same capital services, excluding the effects of business cycles).
as the growth of real potential GDP. An additional 0.8 percentage points of that growth
rate are attributable to increases in capital services, and
About three-quarters of the U.S. economy’s activity, and the remaining 0.5 percentage points are attributable to
the bulk of its productivity growth, occurs in the non- increases in potential hours worked.
farm business sector. The potential output of that sector
Figure 2-3 .
Average Annual Growth of Real Potential GDP and Its Components

Percent
4.0
4 Projected Real potential GDP is
projected to grow at an
3.2 3.2
3.1 average annual rate of
3 2.2 percent over the next
2.3 0.7
2.4 five years, faster than it
1.6 2.2
2.0 has since the recession of
2 1.9 1.9 Real potential GDP
2007 to 2009. That faster
1.4 growth of potential GDP
1.2
2.4 1.3 Potential labor force stems mainly from CBO’s
1.5 productivity
1 projection of a surge in net
1.6 1.6
1.2 immigration from 2022 to
1.0 0.9
0.6 0.4 Potential labor force
2026, which increases the
0 projected growth of the
1950– 1974– 1982– 1991– 2002– 2008– 2024– 2029– labor force.
1973 1981 1990 2001 2007 2023 2028 2034
Real potential GDP is CBO’s estimate of the amount of real GDP that can be produced if labor and capital are employed at their maximum sustainable rates. Its
growth is the sum of the growth of the potential labor force and of potential labor force productivity. The potential labor force is CBO’s estimate of how big the
labor force would be if economic output and other key variables were at their maximum sustainable amounts. Potential labor force productivity is the ratio of
real potential GDP to the potential labor force.
The bars show average annual growth rates over the specified periods. Those rates are calculated using calendar year data.
Projections of the Labor Market For the 2028–2034 period, CBO’s projections of
Conditions in the labor market are expected to soften in employment, the unemployment rate, labor force par-
the near term as the slowdown in economic growth in ticipation, and hourly compensation mainly reflect the
early 2024 moderates the demand for workers. In CBO’s agency’s assessment of the overall performance of the
projections, the growth of employment wanes through economy and the effects of demographic trends over the
early 2024, while the unemployment rate rises and the long term. The aging of the population and net immi-
growth of wages slows (see Figure 2-4). A surge in immigration are expected to strongly influence the size and
gration that began in 2022 and is projected to continue composition of the workforce for decades to come.
through 2026 is expected to increase the size of the labor
force over the entire 2024–2034 period. The percentage Employment
of people participating in the labor force is projected to The growth of nonfarm payroll employment is pro-
decline through 2034 because of the aging of the pop- jected to slacken in 2024 as the slowdown in real output
ulation. After 2026, the labor market gradually returns growth dampens the demand for workers. CBO expects
to its past long-term average relationship to potential employment growth to increase in 2025 as economic
GDP, and the growth of employment, nominal labor growth rebounds but to remain moderate through 2027.
compensation, and wages is projected to be slower than In CBO’s projections, employment grows by an average
during the next several years. The unemployment rate is of 110,000 jobs per month, on net, through 2027.
projected to rise gradually from 2026 through 2030 and
then decline slightly through 2034. The growth of employment is projected to be slower
after 2027 than during the next several years. In CBO’s
projections, nonfarm payroll employment grows by
Figure 2-4 .
Employment, Unemployment, and Wage Growth

Payroll employment
Thousands of jobs (average net monthly change)
600 Projected
400 The number of payroll
200 employees is projected to
0 grow more slowly in 2024
-200 than it has in recent years
-400 as the expected slowdown
-600 in economic growth
-800 dampens the demand for
2002 2006 2010 2014 2018 2022 2026 2030 2034 workers.
Unemployment rate
Percent
10 Recession The slowdown in economic
8 growth is also expected to
6 raise the unemployment
rate through early 2025.
4
2
0
2002 2006 2010 2014 2018 2022 2026 2030 2034 Less demand for labor
and falling inflation are
Growth of wages projected to slow the
Percent
growth of nominal wages
6 over the next year. Wage
5 growth is projected to keep
4 declining gradually after
3 2024 but to remain above
2 its prepandemic 2015–2019
1 average through 2034.
0
2002 2006 2010 2014 2018 2022 2026 2030 2034
Data sources: Congressional Budget Office; Bureau of Labor Statistics. See www.cbo.gov/publication/59710#data.
Payroll employment is the number of employed workers, excluding proprietors, private household employees, unpaid volunteers, farm employees, and
unincorporated self-employed workers. The average monthly change in payroll employment is calculated by dividing by 12 the net change in nonfarm payrolls
from the fourth quarter of one calendar year to the fourth quarter of the next year.
The unemployment rate is the percentage of people in the labor force who are not working but who are available for work and are either seeking work or
expecting to be recalled from a temporary layoff. Data for the unemployment rate are fourth-quarter average values.
Wages are measured using the employment cost index for wages and salaries of workers in private industry. Annual wage growth is measured from the fourth
quarter of one calendar year to the fourth quarter of the next year.
Values for 2000 to 2023 reflect data available from the Bureau of Labor Statistics as of late January 2024. Those data contain values for the fourth quarter of
an average of 51,000 jobs per month, on net, over the 2026 and later years (after individual income tax provi-
2028–2034 period. That projected growth is smaller than sions in the 2017 tax act expire at the end of 2025) are
the average increase over the past two decades because of projected to cause some people to leave the labor force.
the aging of the population, which will cause the labor
force to grow more slowly over the 2028–2034 period, in CBO expects the labor force participation rate to keep
CBO’s estimation, than it did during the past 20 years. falling thereafter—from 62.2 percent at the end of
2027 to 61.4 percent at the end of 2034. That decline
Unemployment is mostly driven by the aging of the population, partic-
The unemployment rate and the number of unemployed ularly the continued retirement of members of the baby
people are projected to increase through early 2025, boom generation. The projected labor force participa-
reflecting the slowdown in economic growth. The overall tion rate in 2034 is slightly below CBO’s estimate of
unemployment rate was 3.7 percent in the fourth quarter the potential labor force participation rate, which falls
of 2023. In CBO’s projections, that rate rises to 4.4 per- from 62.4 percent in 2023 to 62.1 percent in 2027 and
cent by early 2025. The number of unemployed people 61.5 percent in 2034.
increases from 6.3 million in the fourth quarter of 2023
to 7.5 million in early 2025. Hourly Wages and Salaries
In CBO’s projections, slowing demand for labor and
The unemployment rate is projected to decline slightly in falling inflation restrain the growth of nominal wages.
the second half of 2025, mainly in response to stronger CBO expects the employment cost index for wages and
GDP growth in the first half of the year, but then rise salaries of workers in private industry—a measure of
to 4.4 percent through 2027. In CBO’s projections, the hourly price of labor, excluding fringe benefits—to
the unemployment rate continues to rise through grow by 3.6 percent in 2024, down from 4.3 percent
2030 as GDP returns to its historical relationship with in 2023. Wage growth is projected to continue to slow
potential GDP. After peaking at nearly 4.5 percent at the gradually through 2029 but remain above 2.7 percent, its
end of 2030, the unemployment rate declines slightly annual average from 2015 to 2019, before the pandemic.
through 2034—in line with the projected decline during Real compensation per hour in the nonfarm business
that period in the noncyclical rate of unemployment (the sector—a useful gauge of longer-term trends in labor
rate of unemployment resulting from all sources except costs—is projected to grow at an average rate of 2.0 per-
changes in aggregate demand). That decline reflects the cent a year over the 2028–2034 period, close to the pro-
continuing shift in the composition of the workforce jected average growth of labor productivity in that sector.
toward older workers, who tend to have lower rates
of unemployment (when they participate in the labor Projections of Inflation
force), and away from less educated workers, who tend and Interest Rates
to have higher rates of unemployment. In CBO’s projections, inflation continues to slow in
2024, even as the unemployment rate remains below the
Labor Force noncyclical unemployment rate, because the factors that
In CBO’s projections, the labor force continues to caused demand to grow more rapidly than supply after
expand at a moderate pace through 2026. Higher popu- the pandemic are expected to ease this year. The inflation
lation growth during that period, mainly from increased rate will decline toward the Federal Reserve’s long-run
immigration, more than offsets a projected decline in the goal of 2 percent in 2024 and tick up slightly in 2025,
labor force participation rate because of slowing demand CBO projects, before declining slightly in the following
for workers and the aging of the population. A large pro- years.
portion of recent and projected immigration is expected
to include people in the prime working ages of 25 to 54 Short-term interest rates are projected to stay roughly
(see Box 2-1 on page 50). unchanged early in 2024, before declining from the
middle of the year through 2026. Long-term interest
Despite relatively high participation rates among recent rates are expected to rise from early 2024 through the
and projected immigrants, CBO expects the effects of end of the year and then decline moderately through
the aging of the population to reduce the overall labor 2026. From 2027 to 2034, short-term interest rates are
force participation rate from 62.7 percent in 2023 to projected to stay roughly steady while long-term interest
62.2 percent in 2027. In addition, higher tax rates in rates rise modestly.
Inflation ease for categories of goods and services that are assigned
Disruptions in the supply of goods and services—as greater weight in the calculation of the CPI-U.
well as the effects of pandemic-related legislation on
the demand for goods and services—will continue to Over the 2026–2028 period, PCE inflation is projected
fade in 2024 and 2025. In CBO’s projections, inflation to decline gradually because of slower economic growth
slows in 2024, although it remains higher than before and the delayed effects of elevated interest rates on price
the pandemic (see Figure 2-5, top panel). The growth increases. Those factors affect inflation by reducing the
rate of the PCE price index—the Federal Reserve’s demand for goods and services as well as by reducing
preferred measure of inflation—declined to 2.7 percent the demand for labor, which puts upward pressure on the
last year. CBO projects that PCE inflation will fall to unemployment rate. CBO expects the unemployment
2.1 percent in 2024 and then tick up slightly to 2.2 per- rate to remain above the noncyclical rate of unemploy-
cent in 2025. The core PCE price index, which excludes ment, on average, over the 2026–2028 period. A rise in
prices for food and energy, grew by 3.2 percent in 2023. the unemployment rate relative to the noncyclical rate
Its growth is expected to decelerate over the next two is expected to put further downward pressure on the
years, to 2.4 percent in 2024 and 2.3 percent in 2025. growth of wages and prices by reducing workers’ bargain-
ing power for wages and households’ spending power.
Inflation is projected to be lower in 2024 for three
main reasons. First, CBO expects that supply chains In CBO’s projections for 2028 to 2034, core PCE infla-
have largely recovered from issues stemming from the tion averages 2.0 percent a year, and overall PCE infla-
pandemic, and the effects of that recovery will continue tion averages 1.9 percent a year. Both of those growth
relieving upward pressure on prices for goods this year rates are close to the Federal Reserve’s long-run goal. The
(see Figure 2-5, bottom panel). Second, the projected CPI-U is projected to grow by an average of 2.2 percent
slowdown in economic growth and rise in unemploy- a year over that period, a rate consistent with the average
ment in 2024 will put downward pressure on prices by difference of 0.3 percentage points between CPI-U and
slowing demand and the growth of wages. Third, CBO PCE inflation seen over the 2000–2015 period and the
projects that higher long-term interest rates in 2024 will Federal Reserve’s long-run goal for PCE inflation.
put downward pressure on certain types of prices, such
as the prices of shelter services, motor vehicles, and home Interest Rates
furnishings. The rapid growth of shelter prices began CBO anticipates that the Federal Reserve will continue
easing in the second half of 2023. holding the federal funds rate between 5.25 percent and
5.50 percent through the first quarter of 2024. That
Overall PCE inflation is projected to tick up in 2025 even tight monetary policy, reflected in high real interest rates,
as core PCE inflation declines because the factors that will continue to dampen economic activity and reduce
have tended to limit price increases for food and energy inflationary pressures. High real interest rates slow the
(items that are not included in the core PCE index) are growth of consumer spending by making it more costly
expected to recede. In addition, stronger economic activ- to finance purchases (especially large ones, such as
ity is expected to modestly increase the pressure on prices houses and motor vehicles). They also reduce the growth
for some types of services, especially housing. of business investment by making it more expensive
for companies to borrow money to expand productive
Overall and core inflation as measured by the consumer capacity. In addition, high interest rates on mortgages
price index for all urban consumers are projected to be reduce the growth of residential investment.
slower, on average, over 2024 and 2025 than they were
last year. Core CPI-U inflation is usually about 0.3 per- As inflation continues to slow and the economy weak-
centage points higher than core PCE inflation. But in ens, the Federal Reserve is expected to reduce the federal
2023, growth of the core CPI-U outpaced growth of the funds rate starting in the second quarter of this year. CBO
core PCE price index by 0.8 percentage points because projects that after 2024, the Federal Reserve will continue
of the greater weight the CPI-U places on shelter costs, to lower the federal funds rate as inflation falls toward the
which rose rapidly. CBO expects the gap between those central bank’s 2 percent long-term goal. The federal funds
two measures of inflation to narrow—becoming smaller rate is projected to decline to 2.9 percent in mid-2027,
than its historical average after 2025—as price increases increase slightly to 3.0 percent in 2031, and remain steady
Figure 2-5 .
Overall Inflation, Core Inflation, and Contributions to Overall Inflation

Percent
PCE inflation
5
In CBO’s projections, overall
prices, as measured by the
4 PCE price index, increase
less in 2024 and 2025 than
3 they did last year, although
Federal Reserve’s Core inflation
long-run goal the overall rate of inflation
2 remains higher than before
Overall inflation the pandemic.
1
0
2002 2006 2010 2014 2018 2022 2026 2030 2034
Contributions to overall PCE inflation

6 Projected Energy Key reasons that inflation
Food is projected to be lower
5
Other goods a in 2024 and 2025 than in
4 Shelter services b recent years include the
Other services c easing of upward pressures
3 on the prices of food,
PCE price
Price index
Index energy, and other goods
2 and slower growth in the
price of shelter services
1 (because of elevated
interest rates).
0
-1
2000–2018 2019 2020 2021 2022 2023 2024 2025 2026–2034
The overall inflation rate is the rate of growth of the PCE price index; the core inflation rate excludes prices for food and energy. Inflation is measured from the
fourth quarter of one calendar year to the fourth quarter of the next year.
In the bottom panel, values in the bars represent the contributions, in percentage points, of each category of goods and services to the growth rate of the
PCE price index. The sum of those categories’ contributions equals the overall growth of that index. Values for 2000 to 2018 and for 2026 to 2034 are annual
averages over those periods.
PCE = personal consumption expenditures.
a. Core durable and nondurable goods, including vehicles and parts, electronics, home furnishings, and apparel.
b. The flow of housing services that housing units provide to their occupants.
c. Services other than shelter services, including medical services and transportation and recreation services.
Figure 2-6 .
Interest Rates
Percent
In CBO’s projections, the
6 Federal Reserve begins
lowering the federal funds
5
rate in the second quarter
of 2024 in response to
4
slowing inflation and rising
unemployment. Starting this
3
Federal funds rate year, the spread between
2
the federal funds rate and
the interest rate on 10-year
1 Treasury notes is projected
to gradually revert to its
0 long-run average.
2002 2006 2010 2014 2018 2022 2026 2030 2034
Data sources: Congressional Budget Office; Federal Reserve. See www.cbo.gov/publication/59710#data.
The federal funds rate shown here is the effective federal funds rate—the median interest rate that financial institutions charge each other for overnight loans of
their monetary reserves, weighted by loan volume. Data are fourth-quarter average values.
Values for 2023 reflect data on interest rates for all of December 2023. Those data were not available when CBO developed its current projections.
thereafter (see Figure 2-6). Interest rates on short-term much. The interest rate on 10-year Treasury notes is pro-
Treasury securities, such as 3-month Treasury bills, are jected to decline from 4.8 percent in the fourth quarter
expected to move largely in concert with changes in the of 2024 to 3.7 percent in the fourth quarter of 2026.
Federal Reserve’s target range for the federal funds rate.
After 2026, interest rates on short- and long-term
Interest rates on long-term Treasury securities are Treasury securities will be higher than they were, on
expected to rise in 2024 and then fall from early 2025 average, in the decade before the pandemic, CBO pro
through 2026, before increasing modestly. The interest jects. Compared with that decade, federal debt will be
rate on 10-year Treasury notes, which averaged 4.4 per- larger and productivity will grow more quickly, pushing
cent in the fourth quarter of 2023, rises to 4.8 percent up real interest rates. In addition, inflation is projected to
in the fourth quarter of 2024 in CBO’s projections. That be higher than it was before the pandemic, resulting in
increase mainly results from a projected increase in term higher nominal interest rates.
premiums (the additional returns paid to bondholders
for the extra risk associated with holding long-term Projections of Income
bonds) because of weakening conditions in the labor Economic activity and federal tax revenues depend on
market and reductions in the size of the Federal Reserve’s how the total amount of income in the economy is
balance sheet as a percentage of GDP.8 After 2024, inter- divided among labor income, domestic corporate profits,
est rates on long-term Treasury securities are projected proprietors’ income, income from interest and dividends,
to fall along with shorter-term rates, though not by as and other categories. (Labor income includes payments of
wages and salaries, as well as other forms of compensation,
8. The Federal Reserve’s balance sheet shows its assets and liabilities. such as employer-paid benefits and the part of propri-
The central bank pays for financial assets mainly by creating bank etors’ income that corresponds to compensation for hours
reserves and issuing Federal Reserve notes (paper currency), which
worked.) The shares of income attributable to wages and
are liabilities. Reducing the size of its balance sheet means that the
Federal Reserve reduces its assets and liabilities by equal amounts. salaries and to domestic corporate profits are particularly
important for projecting federal revenues because those 2034, domestic corporate profits are projected to be rel-
types of income are taxed at higher rates than other types. atively stable as a percentage of GDP, averaging 9.0 per-
cent, close to their average over the past few decades.
Labor Income
The growth of employee compensation is projected to Uncertainty About the
slow during the 2024–2027 period because of declines Economic Outlook
in labor force participation, increases in unemployment, CBO’s economic projections are subject to a large
and slowdowns in wage growth. However, GDP is amount of uncertainty, both in the short run and
expected to grow more slowly than compensation during beyond. Areas of uncertainty include economic growth,
that period. As a result, labor income is projected to the strength of the labor market, increases in prices and
increase as a percentage of GDP, from 55.9 percent at the wages, credit conditions and asset prices, productivity
end of 2023 to 57.0 percent by the end of 2027. growth, interest rates and monetary policy, developments
outside the United States, and the effects of previously
CBO’s projection is consistent with past cyclical pat- enacted legislation. Other sources of uncertainty include
terns for compensation as a percentage of GDP. When rare, hard-to-predict events that would have significant
the economy slows, as it does in CBO’s near-term economic consequences, such as wars, pandemics, natu-
projections, the growth of compensation tends to slow ral disasters, and financial crises.
less than the growth of other types of income, because
compensation is less sensitive to cyclical fluctuations in CBO’s baseline projections reflect the assumption
the economy. As a result, labor income as a percentage of that current laws governing federal taxes and spending
GDP tends to rise, and other categories of income as a generally remain in place. Although new laws could be
percentage of GDP tend to fall, during periods when the enacted that significantly alter federal taxes and spend-
growth of GDP slows. ing, the following discussion is restricted to uncertainty
stemming from other sources.
From 2028 to 2034, labor income is projected to remain
stable as a percentage of GDP, averaging 57.1 percent. Uncertainty in the Short Run
That projection is below labor income’s average percent- The paths of wage growth, inflation, and economic growth
age of GDP from 1947 to 2000, 60.4 percent, because are key contributors to the uncertainty of CBO’s projec-
some factors that have depressed labor income relative to tions for the next few years. If inflation ended up being
GDP since 2000 are expected to persist in the coming higher than CBO projects, the Federal Reserve would
decade. Those factors include globalization, which has probably raise interest rates or keep rates elevated for a
tended to move the production of labor-intensive goods longer period. Alternatively, weaker economic growth in
and services to countries with lower labor costs, and the short term could reduce inflationary pressures more
technological change, which appears to have increased rapidly than CBO projects, leading to lower interest rates.
returns on capital more than returns on labor.
Growth of Wages and Prices. The rates at which wages
In CBO’s projections, wages and salaries follow roughly and consumer prices will increase in coming years
the same cyclical pattern as labor income as a percentage is highly uncertain. In the case of wage growth, that
of GDP. After equaling 43.1 percent of GDP at the end uncertainty is related to how much the economy grows,
of 2023, wages and salaries are projected to increase to how the demand for labor responds to economic growth,
43.8 percent at the end of 2027 and remain roughly con- how changes in the demand for labor affect wage growth,
stant as a percentage of GDP thereafter. and how past inflation feeds into wages in the future. If
wages were to grow more rapidly than CBO projects,
Corporate Profits businesses could pass along the cost of higher wages
Domestic corporate profits as a percentage of GDP are to consumers by raising prices, which might result in
expected to decline over the next decade as interest pay- higher inflation than the agency projects. Conversely,
ments and wage costs erode companies’ profit margins. slower-than-expected wage growth might result in lower
CBO projects that domestic corporate profits will fall inflation than CBO projects.
from 9.8 percent of GDP at the end of 2023 to 9.2 per-
cent by the end of 2027 because of increases in interest The price of shelter services is another source of uncer-
payments and employee compensation. From 2028 to tainty. CBO projects that growth in the PCE category
of shelter services will slow throughout 2024 because consumer goods, so a different path for home sales
of slower growth in the price of new rental agreements. would have downstream effects on consumer spend-
That decline in the growth of rental prices results from ing. Likewise, a rise in the exchange value of the dollar
a slowdown in the rise of home prices that began in stemming from higher interest rates could have a larger
the second half of 2022, when interest rates increased or smaller effect on net exports than CBO projects. And
and demand for homes softened. Because of the way in the change in business investment in response to higher
which shelter services are calculated, home prices affect borrowing costs could be bigger or smaller than forecast.
them only indirectly. Thus, it is difficult to predict the
size and timing of the effect of home prices on growth in The outlook for consumer spending is also uncertain.
the price of shelter services; the slowdown in that growth Consumer spending depends on the strength of the labor
could be larger or smaller than CBO projects. In turn, market, both directly through income and indirectly
the rates of PCE inflation and CPI-U inflation could be through consumer confidence. If unemployment rises
lower or higher than CBO projects. less than expected, people will have more income to
spend on discretionary goods and services. Furthermore,
CBO’s projections of inflation depend in part on people’s consumer confidence may be higher than expected
expectations about price increases. (When people expect if there is less uncertainty about future employment.
prices to rise significantly in the future, they tend to buy Conversely, if unemployment rises more than expected,
more now, thus fueling price increases.)9 If high inflation people may rein in their spending.
ended up lasting longer than CBO projects, inflation
expectations could rise more materially, and inflation Consumer spending also depends on credit conditions. If
could be higher than the agency projects. Alternatively, if conditions for consumer credit (such as interest rates and
inflation turned out to be lower than expected, consum- lending standards) are more restrictive than expected, some
ers could revise their inflation expectations downward. people may not be able to finance large purchases, such as
cars or furniture, and they may have to reduce credit card
Growth of the Economy. CBO’s forecast of modest spending.
growth of real GDP in 2024, followed by stronger
growth in 2025 and 2026, is highly uncertain. Key Uncertainty Beyond the Short Run
sources of uncertainty are the future paths of inflation Areas of uncertainty that have particularly large impli-
and interest rates. Higher-than-expected inflation would cations for CBO’s projections after the next few years
probably cause the Federal Reserve to raise interest rates include productivity growth, the demand for Treasury
or keep them elevated for longer than CBO anticipates. securities from U.S. and foreign investors, and net immi-
Those higher interest rates would put further downward gration. Higher rates of productivity growth would boost
pressure on interest-sensitive sectors of the economy, economic growth and interest rates above what CBO
such as residential investment, net exports, and busi- projects; lower rates of productivity growth would dampen
ness investment. Alternatively, if inflation slowed more economic growth and interest rates relative to CBO’s
rapidly than CBO projects, interest rates would probably projections. If investors’ demand for Treasury securities
fall faster than anticipated, helping interest-sensitive fell short of or exceeded CBO’s expectations, interest rates
sectors of the economy. and the federal government’s interest payments on its
debt would be higher or lower than projected. Higher or
Another important area of uncertainty is the size of the lower rates of net immigration than CBO projects would
effects of higher interest rates on those interest-sensitive increase or slow the growth of the labor force, leading to
sectors. High mortgage interest rates could have a larger an increase or decrease in hours worked and overall eco-
or smaller impact on the construction of new homes nomic growth compared with what the agency projects.
and the sale of existing homes than CBO projects. The
purchase of a home often leads to the purchase of related Productivity. Factors such as the pandemic and, more
broadly, the pace and adoption of technological innova-
9. For more information about the connection between inflation tion contribute to uncertainty about productivity growth
expectations and actual inflation, see Jeffrey Schafer, Inflation beyond the short run. The effects of the pandemic could
Expectations and Their Formation, Working Paper 2022-03
increase or decrease the growth rate of potential total fac-
(Congressional Budget Office, March 2022), pp. 4–5,
www.cbo.gov/publication/57398. tor productivity in the nonfarm business sector over the
medium term. The pandemic sped the adoption of new Immigration. Several factors contribute to the uncertainty
technologies, such as teleconferencing and telemedicine, of CBO’s projections of net immigration. The surge in
but the effects of that rapid adoption on productivity net immigration since 2022 that CBO projects will con-
remain unknown. An increase in remote work could tinue through 2026 could be smaller or larger than the
create opportunities for new businesses and new jobs. It agency forecasts. CBO’s projection that net immigration
could also spur movements between economic sectors will slow beginning in 2025 is also very uncertain. For
and geographic areas that could help improve people’s example, changing conditions in immigrants’ countries
productivity and social and economic well-being. And of origin could affect the amount of immigration sig-
innovations associated with remote work could lead to nificantly. In addition, estimates and projections of net
substantial reductions in companies' costs. Nevertheless, immigration by some groups—such as people who enter
uncertainty exists about the extent to which such the country illegally—are particularly uncertain, as are
dynamic forces could make existing businesses and projections of those groups’ impact on economic activity
business models obsolete, as well as about the negative as measured by GDP and other indicators. Information
consequences for output and labor markets. about those groups can be difficult to come by.
More generally, technologies that have a wide application Quantifying the Uncertainty of
to many production processes, such as artificial intelli- CBO’s Projections
gence, increase productivity growth in the long run but CBO’s economic projections, especially for nominal
take time to diffuse through the economy. Moreover, the GDP, are a primary input in the agency’s baseline budget
process of adopting those technologies could temporarily projections. Thus, much of the uncertainty of the base-
reduce productivity growth. line budget projections reflects the uncertainty of the
economic forecast.
Demand for U.S. Federal Debt. Another area of uncer-
tainty is the demand for Treasury securities from U.S. To quantify the uncertainty of its economic projections
and foreign investors and the effect of that demand on for 2024 to 2027, CBO conducted 1,000 simulations
the interest rates the federal government will pay on of several key macroeconomic variables to produce
its rising stock of debt. One factor that could affect probability distributions for the future path of those
the demand for Treasury securities is the international variables.10 On the basis of that analysis, CBO estimates
importance of the U.S. dollar. If use of the dollar to that there is approximately a two-thirds chance that
settle international transactions and foreign holdings the annual rate of real GDP growth will be between
of U.S. dollars and dollar-denominated assets were to –0.2 percent and 2.9 percent in calendar year 2024 and
shrink faster than CBO expects, foreign demand for between zero and 4.1 percent in 2027 (see Figure 2-7).
Treasury securities would be lower than expected, and In addition, there is roughly a two-thirds chance that in
interest rates would be higher than anticipated. But if 2024, the unemployment rate will be between 3.4 per-
foreign demand for Treasury securities was stronger than cent and 5.4 percent, the rate of PCE inflation will be
projected, perhaps because of heightened geopolitical between 1.1 percent and 3.1 percent, and the interest
concerns, interest rates would be lower. rate on 10-year Treasury notes will be between 3.9 per-
cent and 5.2 percent, CBO estimates.
Uncertainty about the path of interest rates in the long
term contributes to uncertainty about the economic Comparison With CBO’s
effects of larger federal deficits and debt. CBO esti- February 2023 Economic Projections
mates that factors such as increased saving in the United Since February 2023, when CBO published its pre-
States and other countries, slower growth of total factor vious full economic forecast, the agency has lowered
productivity, and lower labor force participation have its projections of real GDP growth and PCE inflation
contributed to the downward trend in U.S. interest rates
over the past several decades. Great uncertainty remains 10. For a discussion of the methods used to quantify uncertainty, see
about how much those factors will continue to affect Congressional Budget Office, “Estimating the Uncertainty of the
interest rates over the 2024–2034 period and beyond. Economic Forecast Using CBO’s Expanded Markov-Switching
In addition, the extent to which projected increases in Model” (January 2023), www.cbo.gov/publication/58884, and
federal debt would put upward pressure on interest rates, “Estimating the Uncertainty of the Economic Forecast Using
CBO’s Bayesian Vector Autoregression Model” (January 2023),
and the timing of that effect, are highly uncertain.
www.cbo.gov/publication/58883.
Figure 2-7 .
Uncertainty of CBO’s Projections of Output, Unemployment, Inflation, and Interest Rates

Percent
Growth of real GDP
Two-thirds of possible outcomes CBO estimates that there is
4 approximately a two-thirds
2
chance that the annual
growth rate of real GDP will
0
90 percent of possible outcomes be between -0.2 percent
-2
and 2.9 percent in 2024
2019 2020 2021 2022 2023 2024 2025 2026 2027
and between zero and
4.0 percent in 2027.
Unemployment rate
10
8 CBO also estimates that
6
there is roughly a two-thirds
4
chance that in 2024, the
2
0 average unemployment rate
2019 2020 2021 2022 2023 2024 2025 2026 2027 will be between 3.1 percent
and 5.4 percent,
PCE inflation
6
. . . the inflation rate as
4 measured by the PCE price
2 index will be between
0 1.1 percent and 3.1 percent,
-2 and
2019 2020 2021 2022 2023 2024 2025 2026 2027
. . . the average interest rate

Interest rate on 10-year Treasury notes
8 on 10-year Treasury notes
will be between 3.9 percent
6
and 5.2 percent.
4
2
0
2019 2020 2021 2022 2023 2024 2025 2026 2027
Data sources: Congressional Budget Office; Bureau of Economic Analysis; Bureau of Labor Statistics. See www.cbo.gov/publication/59710#data.
To quantify the uncertainty of its projections for 2024 to 2027, CBO conducted 1,000 simulations of several key macroeconomic variables to produce
probability distributions for the future path of those variables. For a discussion of the methods used to quantify uncertainty, see Congressional Budget Office,
“Estimating the Uncertainty of the Economic Forecast Using CBO’s Expanded Markov-Switching Model” (January 2023), www.cbo.gov/publication/58884,
and “Estimating the Uncertainty of the Economic Forecast Using CBO’s Bayesian Vector Autoregression Model” (January 2023), www.cbo.gov/
publication/58883.
calendar year to the fourth quarter of the next year. The unemployment rate is the percentage of people in the labor force who are not working but who are
available for work and are either seeking work or expecting to be recalled from a temporary layoff. Data for the unemployment rate and the interest rate on
10-year Treasury notes are annual averages. The inflation rate based on the PCE price index is measured from the fourth quarter of one calendar year to the
fourth quarter of the next year.
Values for 2019 to 2023 reflect data available from the Bureau of Economic Analysis and the Bureau of Labor Statistics as of late January 2024. Those data
contain values for the fourth quarter of 2023, which were not available when CBO developed its current projections and analyzed their uncertainty.
Table 2-4 .
CBO’s Current and Previous Economic Projections for Calendar Years 2023 to 2033
Percent
Annual average
Overall,
2023 2024 2025 2023–2027 2028–2033 2023–2033
Real GDPa
February 2024 2.5 1.5 2.2 2.1 2.0 2.0
February 2023 0.1 2.5 2.6 2.0 1.8 1.9
Nominal GDP
February 2024 5.4 3.5 4.3 4.3 3.9 4.1
February 2023 3.1 4.9 4.8 4.3 3.8 4.0
Inflation
PCE price index
February 2024 2.9 2.1 2.2 2.3 1.9 2.1
February 2023 3.3 2.4 2.2 2.4 2.0 2.2
Core PCE price indexb
February 2024 3.4 2.4 2.3 2.5 2.0 2.2
February 2023 3.4 2.7 2.4 2.6 2.0 2.3
Consumer price indexc
February 2024 3.2 2.5 2.5 2.5 2.2 2.4
February 2023 4.0 2.4 2.1 2.5 2.3 2.4
Core consumer price indexb
February 2024 3.9 2.9 2.6 2.8 2.3 2.5
February 2023 4.2 2.8 2.3 2.7 2.3 2.5
GDP price index
February 2024 2.8 1.9 2.0 2.1 1.9 2.0
February 2023 3.0 2.3 2.1 2.3 2.0 2.1
Employment cost indexd
February 2024 4.4 3.6 3.4 3.6 3.0 3.3
February 2023 4.5 3.8 3.5 3.7 3.2 3.4
Real potential GDPa
February 2024 2.2 2.2 2.3 2.2 2.0 2.1
February 2023 1.7 1.7 1.8 1.8 1.8 1.8
Continued
for 2024 (see Table 2-4). CBO also expects interest CBO reduced its projections of growth for those com-
rates to be higher from 2024 to 2027 than it projected ponents of GDP for two main reasons. First, economic
last year. After 2027, the differences between CBO’s growth turned out to be much stronger in 2023 than
current and previous economic forecasts are smaller. CBO anticipated last February. As a result of that
Comparing the latest projections with those published in stronger growth, the Federal Reserve is expected to keep
February 2023 illuminates aspects of the current eco- interest rates at a high level for a longer period, slowing
nomic forecast and highlights the kinds of uncertainty economic growth in 2024, particularly in sectors that are
that affect all such projections. sensitive to interest rates. Second, CBO has reduced its
projections of economic growth among major U.S. trad-
Output ing partners and increased its projections of the foreign
CBO’s current projection of the growth rate of real GDP exchange value of the U.S. dollar. Those changes suggest
in 2024, 1.5 percent, is much lower than its February that the growth of real exports in 2024 will be slower
2023 projection of 2.5 percent. That change reflects than previously projected.
slower expected growth of consumer spending, business
fixed investment, residential investment, and exports. For the 2025–2027 period, CBO is now projecting
slightly slower growth of real GDP than it forecast last
CBO’s Current and Previous Economic Projections for Calendar Years 2023 to 2033
Percent
Annual average
Overall,
2023 2024 2025 2023–2027 2028–2033 2023–2033
Annual average
Unemployment rate
February 2024 3.7 4.2 4.4 4.2 4.5 4.3
February 2023 4.7 4.9 4.7 4.7 4.5 4.6
Interest rates
Effective federal funds ratee
February 2024 5.0 5.1 4.1 4.1 2.9 3.5
February 2023 5.0 3.6 2.7 3.2 2.6 2.9
February 2024 4.0 4.6 4.6 4.2 4.0 4.1
February 2023 3.9 3.8 3.8 3.8 3.8 3.8
Wages and salaries
February 2024 43.2 43.5 43.8 43.7 43.8 43.8
February 2023 44.3 44.5 44.5 44.4 44.0 44.2
Domestic corporate profitsf
February 2024 9.9 9.7 9.6 9.6 9.0 9.3
February 2023 7.9 7.5 7.9 7.9 8.0 8.0

For the February 2024 projections, the values shown are based on the economic forecast that CBO completed on December 5, 2023.
a. Real values are nominal values that have been adjusted to remove the effects of changes in prices.
b. Excludes prices for food and energy.
c. The consumer price index for all urban consumers.
d. The employment cost index for wages and salaries of workers in private industry.
e. The median interest rate that financial institutions charge each other for overnight loans of their monetary reserves, weighted by loan volume.
f. Adjusted to exclude the effects of tax rules on depreciation allowances and the effects of changes in prices on the value of inventories.
February, as the economy rebounds from slower growth than 1.8 percent. That change stems from faster expected
in 2024 and the Federal Reserve reduces interest rates growth of potential GDP because CBO increased its pro-
from higher levels than previously projected. CBO now jections of three key inputs to potential output:
projects that real GDP will grow at an average rate of
2.2 percent a year from 2025 to 2027, rather than the • Private business investment determines the stock
of productive capital available to businesses. Since
2.4 percent average projected last February. That change
CBO’s February 2023 forecast was completed, values
mainly results from reductions in the projected growth of
for the past growth of price indexes for structures and
business fixed investment and federal spending. Partially
software have been revised downward by the Bureau
offsetting those effects, CBO increased its projections of
of Economic Analysis, so CBO lowered its projections
the size of the labor force because of higher net immigra-
for the growth of those prices. A lower price means
tion, boosting the growth of real GDP slightly.
more real investment for the same amount of
nominal investment. For example, CBO increased
After 2027, growth of real GDP is now projected to
its forecast of real business fixed investment in 2033
be faster than CBO expected last February, averaging
by 3.9 percent but reduced its forecast of nominal
2.0 percent a year over the 2028–2033 period rather
business fixed investment by 0.4 percent. Greater real CBO has increased its projections of the size of the labor
business investment raises the growth of potential force and the amount of employment from 2024 to
labor force productivity over the projection period. 2033. Those upward revisions result partly from changes
to CBO’s population projections and partly from recent
• Growth of total factor productivity in the nonfarm data that showed a larger labor force and greater employ-
business sector is now projected to be faster over the
ment than previously projected. At the end of 2023, the
2028–2033 period than previously projected. Upward
labor force was larger by 2.0 million people, and payroll
revisions by BEA to the past several years of data for
employment was larger by 3.4 million jobs, than CBO
real GDP led CBO to increase its estimates of the
projected in February 2023.
average growth of total factor productivity in the past
and its projections of that growth over the next decade.
The labor force participation rate over the 2024–2027
As a result, total factor productivity is now projected
period is now projected to be higher than CBO pro-
to grow 0.04 percentage points faster, on average, from
jected last February: an average of 62.4 percent ver-
2028 to 2033 than CBO projected last February.
sus 62.0 percent. CBO has also raised its projection
• Net immigration contributes to the size of the labor of the average labor force participation rate over the
force and, ultimately, to the number of hours worked. 2028–2033 period, but to a lesser extent: to 61.8 percent
In the past year, CBO has raised its projections of from 61.5 percent. That change is mainly attributable
net immigration over the next decade. The potential to an increase in CBO’s projection of net immigration
labor force is now projected to be 2.7 percent bigger that results in people ages 25 to 54 making up a larger
by 2027 than CBO projected last year. For 2028 expected share of the population than CBO projected
to 2033, smaller increases in projections of net last February. People in that age group have the highest
immigration have raised the projected annual growth average rates of labor force participation, so an increase
of the potential labor force by 0.04 percentage points in their share of the population tends to raise the overall
compared with last year’s forecast. participation rate.
Because of the changes to investment and total factor CBO has also revised its method for projecting the
productivity, CBO now projects that the average growth potential rate of labor force participation. That revision
rates of potential labor force productivity and real boosted the projected average rate over the 2024–2027
potential GDP will be 0.1 percentage point higher over period but had little effect on the projected average rate
the 2028–2033 period than the agency projected last over the succeeding six years.
February. Taken together, faster growth in potential labor
force productivity and, to a lesser extent, in the size of Inflation
the labor force have added just over 0.1 percentage point CBO is now projecting lower inflation in 2024 as
to CBO’s projections of the average growth of real GDP measured by the PCE price index than it forecast last
and real potential GDP over the 2028–2033 period, February: 2.1 percent instead of 2.4 percent. The agen-
compared with the February 2023 projections. cy’s projection of CPI-U inflation in 2024, however, is
slightly higher: 2.5 percent instead of 2.4 percent.
CBO’s projections of the size of nominal GDP are larger
throughout the 2023–2033 period than they were previ- The revised outlook for PCE inflation this year reflects
ously, in part because of upward revisions to data about momentum from larger recent declines in inflation in
past GDP. Nominal GDP is now projected to be 2.1 per- many sectors of the economy than CBO anticipated
cent larger in 2033 than CBO projected last February. last February. For example, prices for consumer durable
goods and imported goods and services rose less in 2023
The Labor Market than CBO had expected. As a result, the agency is now
Since February 2023, CBO has reduced its projec- projecting smaller price increases in 2024 for most goods
tion of the average unemployment rate for the 2024– and services than it forecast last February.
2027 period from 4.7 percent to 4.3 percent. That
reduction stems mainly from recent data showing that For 2025 to 2027, CBO has raised its projections of
the unemployment rate was lower in 2023 than previ- CPI-U inflation but left its projections of PCE inflation
ously forecast. CBO’s current projection of the average unchanged since last February. A major reason for the
unemployment rate over the 2028–2033 period, 4.5 per- increase to the CPI-U projections involves growth in
cent, is the same as its previous projection. the price of shelter services. CBO now projects that the
CPI-U index for rent of primary residences—one com- Increases to interest rate projections for 2028 to 2033
ponent of shelter services—will rise by 4.0 percent in were partly offset by the effects of a change in how CBO
2025 instead of the 2.0 percent previously projected. projects interest rates in the period beyond the short run.
For the current forecast, CBO reduced its estimate of
That upward revision reflects the persistent nature of how sensitive the interest rate on 10-year Treasury notes
price increases in that category, as well as recent increases is over the long term to changes in federal debt. CBO
in home prices (which tend to feed into increases in the now estimates that an increase of 1 percentage point
price of shelter services five quarters later). Because the in federal debt as a percentage of GDP will cause the
CPI-U gives more weight to shelter services than the interest rate on 10-year Treasury notes to rise by 2 basis
PCE price index does, the revised outlook for the growth points (0.02 percentage points) rather than by 2.5 basis
of shelter prices prompted an increase to projections of points. That change reflects CBO’s analysis of the statis-
CPI-U inflation but had little effect on projections of tical relationship between the 10-year Treasury rate and
PCE inflation. Growth in the price of shelter services is federal debt (accounting for a variety of other factors)
projected to remain above its long-run trend in 2026 and and CBO’s review of the related research literature.
2027 because of a weaker-than-expected decline in the
growth of home prices. That stronger growth of shelter Income
prices puts upward pressure on overall inflation, but it CBO’s current projections of nominal labor compen-
affects the CPI-U more than the PCE price index. sation are similar to its previous projections for 2024
to 2027. For later years, however, CBO has raised its
For 2028 to 2033, CBO’s current projections of inflation projections of labor compensation, largely because of
are similar to its projections from last February. The reason increases in its projections of employment.
is that CBO expects inflation to return over the long term
to the Federal Reserve’s goal of 2 percent annual growth CBO increased its projections of labor compensation
in the PCE price index. In CBO’s projections, a combina- by less than its projections of GDP. Consequently, labor
tion of the Federal Reserve’s policy actions, the easing of income as a percentage of GDP is now projected to be
supply-related issues, and inflation expectations that con- lower than CBO forecast last February: 55.9 percent
tinue to remain anchored near the Federal Reserve’s goal of GDP at the end of 2023 rather than 58.4 percent;
keep inflation close to that 2 percent target after 2027. 56.7 percent of GDP at the end of 2024 rather than
58.4 percent; and a long-term level of 57.2 percent of
Interest Rates GDP by 2033 rather than 58.1 percent.
CBO now expects both short- and long-term inter-
est rates to be higher, on average, over the next sev- New information about corporate profits has prompted
eral years than it forecast last February. The increase CBO to increase its projections of profits over the
to projected interest rates in the 2024–2027 period coming 10 years. After the previous projections were
mostly reflects stronger economic growth in 2023 than released, BEA revised data about the size of past profits,
CBO had anticipated. In response to that stronger- raising the value of domestic corporate profits at the end
than-expected growth, the Federal Reserve has raised of 2022 from 9.2 percent of GDP to 10.4 percent. In
the target range for the federal funds rate higher than addition, corporate profits declined less in the first three
previously projected, meaning that short-term interest quarters of 2023 than CBO had expected. (Data for the
rates are projected to be higher, on average, over the fourth quarter of 2023 will be released in March.) For
2024–2027 period than CBO expected last February. those reasons, CBO has raised its forecast of domestic
Long-term rates, which partly reflect the expected path corporate profits at the end of 2023 from 7.4 percent of
of short-term rates, will also be higher, on average. GDP to 9.8 percent and its forecast of profits at the end
of 2024 from 7.7 percent of GDP to 9.7 percent. And
CBO has also slightly increased its projections of average whereas last February CBO projected that domestic cor-
short- and long-term interest rates over the 2028–2033 porate profits would reach a long-term size of 7.9 percent
period since last February. That revision was driven of GDP by 2033, the agency now expects them to equal
mainly by higher projections of capital income as a share 8.9 percent of GDP in 2033.
of total income and lower projections of the rate of pri-
vate saving in the United States—changes that, in CBO’s
estimation, put upward pressure on interest rates.
Comparison With Other CPI-U inflation and interest rates on 10-year Treasury
Economic Projections notes are at or above the high end of those ranges.
CBO routinely compares its economic projections with
those of the private-sector economists included in the The Federal Reserve
Blue Chip Economic Indicators and the Federal Reserve The Federal Open Market Committee, which sets mon-
Bank of Philadelphia’s Survey of Professional Forecasters, etary policy for the Federal Reserve, also produces eco-
as well as with the projections of the Federal Reserve’s nomic projections. CBO’s projection of real GDP growth
Federal Open Market Committee. Some of the differ- in 2024 is within the central tendency (roughly the middle
ences between CBO’s projections and those of other fore- two-thirds) of the forecasts in the Federal Reserve’s most
casters are attributable to differences in the economic data recent Summary of Economic Projections, but CBO’s projec-
available when the projections were made, as well as to tions of real GDP growth in 2025 and 2026 are above the
differences in the economic and statistical models used in central tendency (see Figure 2-10).13 CBO’s projection of
making the projections. In addition, other forecasts may real GDP growth in the longer term is within the central
reflect an expectation that additional legislation will be tendency of the Federal Reserve’s forecasts.
enacted, whereas CBO’s projections reflect the assump-
tion that current laws generally remain unchanged. For the unemployment rate, CBO’s forecasts are above
the central tendency for the 2024–2026 period and later
The Blue Chip Forecasts years. One possible reason for that divergence may be
CBO’s economic projections can be compared with the differences between CBO’s and the Federal Reserve’s esti-
forecasts of the more than 40 private-sector economists mates of the noncyclical rate of unemployment. CBO’s
published in the January 2024 Blue Chip Economic projections of PCE inflation are slightly below the cen-
Indicators (see Figure 2-8).11 CBO’s forecasts for 2024 tral tendency of the Federal Reserve’s forecasts for 2024,
and 2025 of the unemployment rate, inflation as mea- at the high end of the central tendency for 2025, slightly
sured by the GDP price index, and interest rates on above it for 2026, and then below the central tendency
3-month Treasury bills are within the middle two-thirds over the longer term. CBO’s projections of the federal
of the ranges of Blue Chip forecasts. CBO’s projections funds rate are within the central tendency of the Federal
of real GDP growth and CPI-U inflation are also within Reserve’s forecasts for 2024 and 2025 but on the high
the middle two-thirds of the range of Blue Chip forecasts end of the central tendency for 2026 and later years.
for 2024 but are above that range for 2025. The agency’s
projections of interest rates on 10-year Treasury notes are A key difference between CBO’s economic projections
higher than the middle two-thirds of the range of Blue and those made by Federal Reserve officials is that CBO
Chip forecasts for both 2024 and 2025. (For 2024, CBO develops its projections so they fall in the middle of the
is projecting higher 10-year rates than any of the Blue likely range of outcomes under current law. The Federal
Chip forecasters.) Reserve uses a different concept: Each Federal Reserve
official provides a “modal” forecast—a forecast of the
The Survey of Professional Forecasters most likely outcome—reflecting that person’s assessment
CBO’s economic projections can also be compared with of appropriate monetary policy, and the Federal Reserve
the projections of the more than 30 private-sector and reports ranges of those modal values.
academic forecasters included in the Federal Reserve
Bank of Philadelphia’s Survey of Professional Forecasters
(SPF).12 CBO’s projections are within the middle two- 13. Board of Governors of the Federal Reserve System, “Table 1.
thirds of the ranges of SPF forecasts for 2024 and 2025 Economic Projections of Federal Reserve Board Members
for the growth of real GDP, the unemployment rate, and Federal Reserve Bank Presidents, Under Their Individual
overall CPI-U inflation, and interest rates on 3-month Assumptions of Projected Appropriate Monetary Policy,
December 2023,” Summary of Economic Projections (December 13,
Treasury bills (see Figure 2-9). CBO’s forecasts of core
2023), p. 2, http://tinyurl.com/2t9t7m4e (PDF). The range
of Federal Reserve forecasts is based on the highest and lowest
projections made by the members of the Board of Governors
11. Wolters Kluwer, Blue Chip Economic Indicators, vol. 49,
of the Federal Reserve System and the presidents of the Federal
no. 1 (January 10, 2024).
Reserve Banks; the central tendency is the range that results
12. Federal Reserve Bank of Philadelphia, Survey of Professional after removing the three highest and three lowest forecasts. For
Forecasters: Fourth Quarter 2023 (November 13, 2023), comparison with the Federal Reserve’s longer-term projections,
http://tinyurl.com/ywwvvhkd. CBO used its projections for the last quarter of 2034.
Figure 2-8 .
Comparison of CBO’s Economic Forecasts With Those of the Blue Chip Forecasters
Percent
Growth of real GDP Unemployment rate

4 6
3 5
2 4
1 3
0 0
2024 2025 2024 2025
CPI-U inflation GDP price index inflation

4 4
3 3
2 2
1 1
0 0
2024 2025 2024 2025
Interest rate on 3-month Treasury bills Interest rate on 10-year Treasury notes
6 6
5 5
4 4
3 3
2 2
0 0
2024 2025 2024 2025
= CBO’s forecast = One Blue Chip forecast = Middle two-thirds range of Blue Chip forecasts
Data sources: Congressional Budget Office; Wolters Kluwer, Blue Chip Economic Indicators, vol. 49, no. 1 (January 10, 2024). See www.cbo.gov/
publication/59710#data.
Each of the data points represents a forecast made by the more than 40 forecasters included in the Blue Chip survey. The middle two-thirds range omits the top
one-sixth and the bottom one-sixth of the forecasts.
Real GDP is nominal GDP that has been adjusted to remove the effects of changes in prices. Rates of real GDP growth and CPI-U inflation are measured as
changes from the average of one calendar year to the next year.
expecting to be recalled from a temporary layoff. The unemployment rate and the interest rate on 10-year Treasury notes are calendar year averages.
CPI-U = consumer price index for all urban consumers; GDP = gross domestic product.
Figure 2-9 .
Comparison of CBO’s Economic Forecasts With Those in the Survey of Professional Forecasters
Percent

10 6
8
5
6
4 4
2
3
0
-2 0
Q1 2024 Q2 2024 Q3 2024 Q4 2024 2024 2025 Q1 2024 Q2 2024 Q3 2024 Q4 2024 2024 2025
CPI-U inflation Core CPI-U inflation

4 4
3 3
2 2
1 1
0 0
Q1 2024 Q2 2024 Q3 2024 Q4 2024 2024 2025 Q1 2024 Q2 2024 Q3 2024 Q4 2024 2024 2025
Interest rate on 3-month Treasury bills Interest rate on 10-year Treasury notes
6 6
5 5
4 4
3 3
2 2
0 0
Q1 2024 Q2 2024 Q3 2024 Q4 2024 2024 2025 Q1 2024 Q2 2024 Q3 2024 Q4 2024 2024 2025
= CBO’s forecast = One SPF forecast = Middle two-thirds range of SPF forecasts
Data sources: Congressional Budget Office; Federal Reserve Bank of Philadelphia, Survey of Professional Forecasters: Fourth Quarter 2023 (November 13,
2023), http://tinyurl.com/ywwvvhkd. See www.cbo.gov/publication/59710#data.
Each of the data points represents a forecast made by the more than 30 respondents in the Survey of Professional Forecasters. The middle two-thirds range
omits the top one-sixth and the bottom one-sixth of the forecasts.
Real GDP is nominal GDP that has been adjusted to remove the effects of changes in prices. Quarterly growth of real GDP is measured from one quarter to the
next quarter and is expressed as an annual rate; annual growth is measured from the average of one calendar year to the next year.
expecting to be recalled from a temporary layoff. The unemployment rate and interest rates are quarterly or calendar year averages.
Quarterly CPI-U inflation is measured from one quarter to the next quarter and is expressed as an annual rate; annual CPI-U inflation is measured from the fourth
quarter of one calendar year to the fourth quarter of the next year. The core CPI-U excludes prices for food and energy.
CPI-U = consumer price index for all urban consumers; GDP = gross domestic product; SPF = Survey of Professional Forecasters.
Figure 2-10 .
Comparison of CBO’s Economic Forecasts With Those of the Federal Reserve

Percent

3 6
5
2
4
1
3
0 0
2024 2025 2026 Longer term 2024 2025 2026 Longer term
PCE inflation Federal funds rate

4 6
3 5
4
2
3
1 2
0 0
2024 2025 2026 Longer term 2024 2025 2026 Longer term
= CBO’s forecast = One Federal Reserve forecast = Middle two-thirds range of Federal Reserve forecasts
Data sources: Congressional Budget Office; Board of Governors of the Federal Reserve System, Summary of Economic Projections (December 13, 2023), Table 1,
http://tinyurl.com/2t9t7m4e (PDF). See www.cbo.gov/publication/59710#data.
Each of the data points represents the midpoint of a forecast range (for real GDP growth, the unemployment rate, and PCE inflation) or an actual forecast (for the
federal funds rate) made by one of the members of the Federal Reserve Board or one of the presidents of the Federal Reserve Banks in December 2023. (One
Federal Reserve official did not submit longer-term projections for real GDP growth, the unemployment rate, or the federal funds rate.) The middle two-thirds
range omits the three highest and three lowest projections.
calendar year to the fourth quarter of the next year.
expecting to be recalled from a temporary layoff. Data for the unemployment rate are fourth-quarter average values.
The inflation rate based on the PCE price index is measured from the fourth quarter of one calendar year to the fourth quarter of the next year.
The federal funds rate is the interest rate that financial institutions charge each other for overnight loans of their monetary reserves. The Federal Reserve
officials’ forecasts of the federal funds rate are for the rate at the end of the year, whereas CBO’s forecasts are fourth-quarter values.
Chapter 3: Changes in CBO’s Baseline
Projections Since May 2023
Overview • Legislative changes result from laws enacted since the

The Congressional Budget Office estimates that if no new agency published its previous baseline projections.2
legislation affecting spending and revenues is enacted, the
budget deficit for fiscal year 2024 will total $1.5 trillion. • Economic changes arise from revisions that the
agency has made to its economic forecast, including
That amount is $0.1 trillion (or 4 percent) less than the
those made to incorporate the projected effects of
$1.6 trillion deficit the agency estimated in May 2023,
enacted legislation on the economy.3
when it last updated its baseline budget projections.1
Since then, CBO has increased its projection of revenues • Technical changes are revisions to projections that are
in 2024 by $88 billion (or 2 percent) and its estimate of neither legislative nor economic.
outlays by $24 billion (or less than 1 percent).
The $1.4 trillion reduction in the projected deficit over the
CBO now projects that if current laws generally 2024–2033 period is the net result of the following changes:
remained in place, the cumulative deficit for the 2024–
2033 period would be $18.9 trillion. That amount is • A $2.6 trillion decrease attributable to legislative
changes. In particular, CBO reduced its projections
$1.4 trillion (or 7 percent) less than the $20.3 trillion
of discretionary spending to account for the limits,
the agency projected in May 2023 (see Figure 3-1). That
or caps, on funding enacted in the FRA, and for
change is the net result of a $1.0 trillion (or 1 per-
the funding amounts provided by the continuing
cent) decrease in projected outlays and a $0.3 trillion
resolution, which are less than the amounts in CBO’s
(or 1 percent) increase in projected revenues over the
May 2023 baseline projections.
2024–2033 period. The biggest factor contributing to
smaller projected deficits was the reduction in projected • A $0.1 trillion net increase resulting from economic
discretionary outlays stemming from the combination of changes. A $1.2 trillion increase in projected net
the Fiscal Responsibility Act (FRA, Public Law 118-5) outlays for interest was almost completely offset
and the Further Continuing Appropriations and Other by a $0.6 trillion increase in projected revenues,
Extensions Act, 2024 (P.L. 118-22, referred to here as
the continuing resolution). 2. The baseline budget projections described in this report
incorporate the effects of legislation enacted through January 3,
In CBO’s current projections, debt held by the public 2024, and therefore do not include the effects of the Further
Additional Continuing Appropriations and Other Extensions
reaches $45.7 trillion at the end of 2033—$1.0 trillion Act, 2024 (P.L. 118-35), which was enacted on January 19, 2024.
less than the $46.7 trillion that it reached that year in Subsequent legislation that has been enacted to date would not
the agency’s May 2023 projections. Measured in relation significantly change the projections presented here. The effects of
to the size of the economy, federal debt at the end of legislation discussed here generally reflect the estimates provided
that year is now projected to equal 114 percent of gross for budget enforcement purposes around the time the legislation
was enacted.
domestic product (GDP); last year, debt in 2033 was
projected to be 119 percent of GDP. 3. CBO’s current economic forecast reflects the laws enacted and
the policy measures taken through December 5, 2023, as well
as the agency’s initial projections of the effects of the Fiscal
When CBO updates its baseline budget projections, it
Responsibility Act. The economic changes discussed in this
groups the revisions into three categories—legislative, eco- chapter reflect differences between that forecast and CBO’s
nomic, and technical. Those categories are defined as follows: February 2023 forecast. For more details about that earlier
forecast, see Congressional Budget Office, The Budget and
1. Congressional Budget Office, An Update to the Budget Outlook: Economic Outlook: 2023 to 2033 (February 2023), www.cbo.gov/
2023 to 2033 (May 2023), www.cbo.gov/publication/59096. publication/58848.
Figure 3-1 .
Changes in CBO’s Baseline Projections of the 10-Year Deficit Since May 2023
Trillions of dollars
2024–2033
2024–2033 deficitdeficit in CBO’s
in CBO's May
20.3
May2023
2023baseline
baseline
The cumulative deficit over
2024–2033
2024–2033deficit
deficitininCBO's
CBO’s the 2024–2033 period
18.9
February
February2024
2024baseline
baseline is $1.4 trillion smaller in
CBO’s current baseline
projections than it was in
Legislative changes -2.6 the agency’s May 2023
projections, mainly because
Net increase in outlays from of newly enacted legislation
0.8
economic changes
that reduced discretionary
Net increase in revenues from outlays.
-0.6
economic changes
Technical changes 1.1
largely from corporate income taxes, and decreases $0.1 trillion and its projections of deficits over the
in projected mandatory and discretionary outlays 2024–2033 period by $2.6 trillion (see Table 3-1).4 Most
totaling $0.4 trillion. of the legislative changes were to projected outlays for
discretionary programs.
• A $1.1 trillion net increase attributable to technical
changes. Several large changes increased deficits:
Changes in Outlays
a downward revision to projections of corporate
Incorporating the effects of recently enacted legislation
income tax revenues and upward revisions to
into CBO’s baseline projections reduced estimated out-
projections of net outlays for interest and outlays
lays in 2024 by $0.1 trillion (or 1 percent) and projected
for Medicare, Social Security, and clean vehicle and
outlays over the 2024–2033 period by $2.6 trillion (or
energy-related tax credits. The largest of the technical
3 percent). Most of the decrease over the 10-year period
changes that reduced deficits was an increase in
is in projected outlays for discretionary programs.5 Nearly
projected payroll tax revenues.
all of the rest is a reduction in projected net outlays for
interest that stems from the federal government’s borrow-
As a result of those changes, primary deficits—that is,
ing less to finance the smaller deficits resulting from the
deficits excluding net outlays for interest—are now pro-
legislative changes. Legislative changes to projections of
jected to total $2.5 trillion (or 26 percent) less over the
outlays for mandatory programs were minimal.
2024–2033 period than CBO projected in May 2023.
That reduction was partially offset by an increase of
Discretionary Outlays. To account for legislation
$1.1 trillion (or 11 percent) in projected net interest
enacted since the agency completed its May 2023 base-
outlays over the 2024–2033 period.
line projections, CBO lowered its projections of
Legislative Changes
4. The May 2023 baseline projections incorporated the effects of
Revisions CBO made to its projections of outlays
legislation enacted through March 30, 2023.
and revenues to account for legislation enacted after
the May 2023 baseline projections were prepared 5. Funding that is provided in annual appropriation acts and
reduced the agency’s estimate of the deficit for 2024 by the outlays that result from it are generally categorized as
discretionary.
CHAPTER 3: CHANGES IN CBO’S BASELINE PROJECTIONS SINCE MAY 2023 THE BUDGET AND ECONOMIC OUTLOOK: 2024 TO 2034 77
discretionary outlays over the 2024–2033 period by as an emergency requirement are now $0.7 trillion less
$2.3 trillion. That downward revision resulted from ($0.3 trillion less for defense and $0.4 trillion less for
the caps on discretionary funding established by the nondefense activities) over the 2024–2033 period than
FRA and from the continuing resolution’s provid- they were in CBO’s previous baseline projections.
ing less funding (including funding designated as an
emergency requirement) than the amounts in the Mandatory Outlays. CBO lowered its estimate of
May 2023 projections. mandatory outlays in 2024 by $3 billion (or 0.1 per-
cent) and its projections of such outlays over the 2024–
The FRA established caps that limit most defense 2033 period by $8 billion (or less than 0.1 percent), on
funding and nondefense funding for 2024 and 2025. net, to account for legislation enacted since the agency
(Funding constrained by those caps is often referred to prepared its previous baseline projections. The largest
as base funding.) Although the base funding provided change stems from the FRA, which rescinded unobli-
by the continuing resolution is less than the funding gated funds provided to certain programs during the
amounts projected in CBO’s May 2023 baseline, in 2020–2022 period as part of the federal response to the
CBO’s estimation, it still exceeds the caps that were in coronavirus pandemic.
place on January 3, 2024. As a result, the agency’s base-
line projections include reductions in funding to comply Net Interest Outlays. Before accounting for the changes
with those caps (see Box 1-1 on page 22). in interest payments that would result from changes in
projected deficits (known as debt service), CBO lowered
Total base discretionary funding is $1.6 trillion in its estimate of the deficit for 2024 by $0.1 trillion and
2024 and in 2025 in CBO’s current baseline projec- its projection of the cumulative deficit for the 2024–
tions. Those annual funding amounts are $0.1 trillion 2033 period by $2.3 trillion to account for legislation
and $0.2 trillion less, respectively, than the amounts enacted since the May 2023 baseline was prepared.
CBO projected for 2024 and 2025 in May 2023. In The reduction in federal borrowing stemming from the
accordance with provisions of the Balanced Budget and smaller annual deficits would lower debt-service costs;
Emergency Deficit Control Act of 1985 (P.L. 99-177), thus, CBO reduced its projections of net outlays for
CBO generally projects funding for discretionary interest over the 10-year period by $0.4 trillion.
programs by assuming that funding in future years is
equal to the amount provided for the current year with Changes in Revenues
increases for inflation.6 As a result, those downward To account for legislation enacted since it prepared its
adjustments continue to have effects after 2025 in the previous baseline projections, CBO revised downward its
agency’s baseline projections. In all, to account for the estimate of revenues in 2024 by less than $1 billion and
caps in place in 2024 and 2025 and the reductions in its projection of revenues over the 2024–2033 period by
base funding resulting from the continuing resolution, $3 billion. Those reductions are largely to account for a
CBO lowered its projections of outlays from 2024 to provision of the FRA that rescinded funds provided to
2033 by $1.5 trillion. the Internal Revenue Service (IRS) for tax enforcement
and related activities.
In addition, as of January 3, 2024, $99 billion in fund-
ing designated as an emergency requirement, which is Economic Changes
not constrained by the caps set in the FRA, has been The economic forecast that underlies CBO’s baseline
provided for this fiscal year. That amount is $80 bil- budget projections includes the agency’s projections of
lion less than the amount of such funding in CBO’s GDP, interest rates, the labor force, wages and salaries,
May 2023 baseline projections. Because CBO’s current inflation, and other factors that affect federal spending
projections of such funding begin with that smaller and revenues. Taken together, the revisions made to
amount and grow with inflation over the next 10 years, account for changes in that forecast reduced CBO’s esti-
projected outlays stemming from funding designated mate of the deficit in 2024 by $0.1 trillion and increased
its projection of the cumulative deficit for the 2024–
2033 period by the same amount. Upward revisions to
6. For its projections of discretionary funding related to federal
personnel, CBO is required to use the employment cost index revenues and downward revisions to noninterest outlays
for wages and salaries to adjust for inflation; for its projections of in the agency’s projections largely offset upward revisions
other types of discretionary funding, the agency is required to use to net outlays for interest.
the GDP price index.
Table 3-1 .
Changes in CBO’s Baseline Projections of the Deficit Since May 2023

Billions of dollars
Total
2024– 2024–
2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2028 2033
Deficit in CBO’s May 2023 baselinea 1,571 1,761 1,718 1,709 1,934 1,855 2,126 2,291 2,496 2,852 8,693 20,314
Legislative changes
Changes in revenues * * * * * * * * * * -1 -3
Changes in outlays
Discretionary
Defense -26 -41 -50 -58 -65 -71 -77 -79 -81 -83 -240 -631
Nondefense -58 -125 -147 -168 -177 -184 -189 -193 -197 -202 -675 -1,640
Subtotal, discretionary -84 -167 -197 -225 -242 -254 -265 -273 -279 -285 -915 -2,271
Mandatory -3 -3 1 1 -1 * 1 * -2 -1 -5 -8
Debt serviceb -2 -8 -15 -21 -29 -37 -46 -56 -67 -79 -74 -360
Total change in outlays -88 -177 -210 -246 -272 -291 -311 -329 -348 -365 -994 -2,638
Increase or decrease (-) in the deficit from
legislative changes -88 -177 -210 -246 -272 -291 -311 -328 -348 -365 -993 -2,636
Economic changes
Changes in revenues
Individual income taxes 76 64 25 -3 -15 -18 -22 -28 -34 -38 147 8
Payroll taxes 8 2 -3 -2 3 8 13 18 23 27 8 98
Corporate income taxes 72 69 60 51 46 46 48 49 49 50 298 541
Federal Reserve remittances -3 -3 -2 -2 -63 -23 11 12 16 19 -73 -38
Other 4 4 4 5 4 4 3 3 3 3 21 37
Total change in revenues 157 136 84 50 -25 17 54 55 56 61 401 645
Changes in outlays
Mandatory
Social Security -10 -18 -18 -14 -13 -15 -18 -24 -29 -34 -73 -193
Medicaid -4 -3 -3 -4 -6 -8 -9 -11 -13 -15 -20 -75
SNAP -6 -8 -7 -6 -5 -5 -4 -4 -4 -5 -32 -54
Child nutrition * -1 -2 -2 -2 -2 -2 -3 -3 -3 -7 -20
Other -11 -9 -6 * 4 6 8 8 8 13 -22 20
Subtotal, mandatory -32 -39 -35 -26 -22 -23 -27 -34 -41 -43 -154 -321
Discretionary 0 * -2 -3 -5 -7 -9 -12 -14 -16 -10 -69
Net interest
Effect of interest rates and inflation 82 153 158 134 109 97 94 100 109 119 635 1,153
Debt serviceb -2 -5 -5 -3 * 2 3 4 4 4 -15 2
Subtotal, net interest 80 147 153 131 109 100 97 103 112 123 620 1,155
Total change in outlays 48 108 116 102 82 70 61 58 57 64 456 766
economic changes -109 -28 32 53 107 53 7 3 1 3 54 121
Continued
Changes in CBO’s Baseline Projections of the Deficit Since May 2023

Billions of dollars
Total
2024– 2024–
2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2028 2033
Technical changes
Changes in revenues
Individual income taxes -82 -60 -4 15 16 22 23 22 16 24 -115 -8
Payroll taxes 22 30 36 37 37 38 39 40 43 45 162 367
Corporate income taxes 19 -64 -63 -61 -61 -59 -57 -57 -57 -56 -230 -517
Customs duties -17 -15 -14 -12 -11 -10 -9 -8 -7 -6 -70 -111
Other -11 -5 -5 -4 -4 -2 -2 -2 -2 -2 -29 -40
Total change in revenues -69 -114 -50 -25 -23 -12 -7 -6 -8 5 -282 -309
Changes in outlays
Mandatory
Medicare 24 25 18 19 21 20 21 21 21 23 106 212
Social Security 6 10 14 16 19 21 23 23 24 23 65 180
Clean vehicle and energy-related tax credits 5 9 12 14 17 18 15 14 14 7 57 124
Veterans’ benefits -14 -5 4 -4 -7 -14 -15 -17 -20 -20 -26 -111
Medicaid 23 17 11 10 11 9 5 * -7 -11 72 67
Deposit Insurance -18 -12 -2 3 -48 2 2 2 2 1 -77 -67
Student loans 5 6 6 5 6 6 6 6 6 6 27 57
Coronavirus refundable tax credits 21 13 0 0 0 0 0 0 0 0 34 34
Other -7 17 14 9 9 9 3 5 10 5 42 73
Subtotal, mandatory 45 80 75 73 28 70 60 54 49 33 301 568
Discretionary
Defense -5 -2 * -1 -1 -1 1 * * * -7 -6
Nondefense -23 -15 -5 * 2 2 1 -1 -4 -6 -41 -50
Subtotal, discretionary -27 -17 -5 -1 1 1 2 -1 -4 -6 -49 -56
Net interest
Debt serviceb 5 15 20 22 24 25 27 29 32 34 86 232
Other 42 24 11 5 -1 -2 -2 * 4 10 81 90
Subtotal, net interest 47 39 31 27 22 23 25 29 36 43 166 322
Total change in outlays 65 102 101 100 51 94 87 83 81 71 419 835
technical changes 134 216 151 125 75 106 94 88 89 66 701 1,144
All changes
Total increase or decrease (-) in the deficit -63 11 -26 -69 -90 -132 -210 -237 -258 -296 -238 -1,370
Deficit in CBO’s February 2024 baselinea 1,507 1,772 1,692 1,640 1,844 1,723 1,917 2,054 2,238 2,556 8,456 18,944
Addendum:
Change in revenues 88 22 34 24 -49 4 46 49 48 66 118 332
Change in outlays 24 32 7 -44 -139 -127 -163 -188 -210 -230 -119 -1,038
Increase or decrease (-) in the primary deficitc -188 -167 -196 -206 -192 -217 -285 -313 -339 -383 -950 -2,488
Increase or decrease (-) in the deficit from the
change in net interest outlays 125 178 170 137 102 86 76 76 81 87 712 1,118

SNAP = Supplemental Nutrition Assistance Program; * = between -$500 million and $500 million.
a. When outlays exceed revenues, the result is a deficit. Values in this row were calculated by subtracting revenues from outlays; thus, positive values indicate
deficits. When outlays are subtracted from revenues, as recorded in the federal budget and in the tables in Chapter 1, negative values indicate deficits.
b. Debt-service costs are the changes in interest payments resulting from an increase or decrease in projected deficits.
c. Primary deficits exclude net outlays for interest.
Changes in Outlays Discretionary Outlays. Economic changes—stemming

Revisions to CBO’s economic forecast include increases primarily from downward revisions to the agency’s fore-
in projected interest rates and reductions in projected casts of certain measures of inflation—reduced projected
rates of inflation. Those and other changes to the eco- discretionary outlays over the 2024–2033 period by
nomic forecast resulted in net increases of $48 billion $69 billion (or less than 1 percent). CBO’s baseline pro-
(or 1 percent) in the agency’s estimate of outlays in 2024 jections generally reflect the assumption that discretion-
and of $0.8 trillion (or 1 percent) in its projections of ary funding that is not constrained by the statutory caps
outlays over the 2024–2033 period. currently in place keeps pace with inflation. Base funding
for discretionary programs is assumed to keep pace with
Mandatory Outlays. Economic changes decreased CBO’s inflation after 2025, when the caps are no longer in effect.
estimate of mandatory outlays in 2024 by $32 billion
(or 1 percent), on net. Projections of mandatory outlays Net Interest Outlays. Economic changes boosted
from 2024 to 2033 fell by $0.3 trillion (or 1 percent). CBO’s estimate of net outlays for interest in 2024 by
Downward revisions to projected outlays for Social Security $0.1 trillion and its projections of such outlays over the
and Medicaid account for five-sixths of that decrease. 2024–2033 period by $1.2 trillion (or 11 percent). Those
changes are largely attributable to upward revisions to the
Social Security. CBO lowered its projections of out- agency’s forecasts of interest rates on Treasury securities.
lays for Social Security from 2024 to 2033 by a total
of $0.2 trillion (or 1 percent) because the agency now Before debt service is taken into account, changes
projects inflation and average wages to be lower than it did stemming from revisions to CBO’s economic forecast
previously. Social Security provides annual cost-of-living increased the projected cumulative deficit for the 2024–
adjustments (COLAs) based on changes in the consumer 2033 period by $119 billion. The costs of servicing the
price index for urban wage earners and clerical workers additional borrowing needed to finance the larger deficits
(CPI-W). CPI-W growth in 2023 and the corresponding increased the agency’s projections of net outlays for inter-
COLA that took effect in January 2024 were 1 percentage est over that period by an additional $2 billion.
point lower than CBO previously projected. As a result,
projected Social Security outlays fell (see Figure 3-2). Changes in Revenues
COLAs in later years are unchanged, on average. To account for changes in its economic forecast, CBO
increased its estimate of revenues in 2024 by $157 billion
Medicaid. CBO lowered its projections of outlays for (or 3 percent) and raised its projection of revenues for the
Medicaid over the 2024–2033 period by $75 billion (or entire 2024–2033 period by $645 billion (or 1 percent),
1 percent). The agency’s latest economic forecast includes on net. That increase is largely driven by changes to CBO’s
downward revisions to projected increases in many prices, projections of revenues from corporate income taxes.
which reduce projected payment rates for Medicaid.
Revenues over most of the 2024–2033 period are higher
Supplemental Nutrition Assistance Program and Child in the agency’s current projections than they were in its
Nutrition. Economic changes to CBO’s projections for May 2023 projections, mainly because CBO increased
the 2024–2033 period decreased projected outlays for its projections of wages and profits: The higher wages
the Supplemental Nutrition Assistance Program by increased revenues from payroll taxes, and the greater
$54 billion (or 4 percent) and for child nutrition pro- profits increased receipts from individual and corporate
grams by $20 billion (or 4 percent). Those decreases income taxes. Partially offsetting those increases in pro-
stemmed primarily from downward revisions to CBO’s jected revenues, CBO revised downward its projections of
projections of increases in food prices. remittances from the Federal Reserve to the Treasury. That
change stemmed from upward revisions to the agency’s
Other Mandatory Programs. Changes in CBO’s eco- forecast of short-term interest rates, which increased the
nomic forecast also affected projected outlays for other Federal Reserve’s interest expenses in CBO’s projections.
mandatory programs. Although those updates included
both upward and downward adjustments, the net effect Individual Income Taxes. Economic changes increased
was a $20 billion increase in projected outlays for those CBO’s estimate of individual income tax revenues in
programs over the 2024–2033 period. 2024 by $76 billion (or 3 percent) and its projections of
Figure 3-2 .
Key Changes in CBO’s Economic Forecast Since February 2023

Average wages and salaries CPI-W inflation
Thousands of dollars Percent
125 6
February 2023 economic forecast

100
4
75 Current economic forecast February 2023
Current
50
2
Downward revisions to the forecast of Revisions to the inflation forecast reduced projected
25 average wages and salaries led to lower spending on Social Security and other benefit programs
projections of revenues from income that receive cost-of-living adjustments, as well as
taxes and outlays for Social Security. projected discretionary funding.
0 0
2023 2025 2027 2029 2031 2033 2023 2025 2027 2029 2031 2033
Corporate profits Interest rate on 10-year Treasury notes

Billions of dollars Percent
5 5
Current
4 Current 4
February 2023
3 February 2023 3
2 2
As a result of upward revisions to the
forecast of corporate profits, revenues
1 from corporate income taxes are now 1
projected to be higher than CBO Increases in projected interest rates drove up net
projected in May 2023. outlays for interest in CBO’s baseline projections.
0 0
2023 2025 2027 2029 2031 2033 2023 2025 2027 2029 2031 2033
Data are for fiscal years.
In the lines representing the current economic forecast, values for 2023 are actual values.
CPI-W = consumer price index for urban wage earners and clerical workers.
such revenues over the 2024–2033 period by $8 billion (or short-term interest rates are higher now than they were
less than 1 percent), on net. The increase in 2024 was driven in the economic forecast published in February 2023;
partly by higher estimates of asset values, which tended to those higher projected interest rates increased the Federal
boost expected capital gains realizations and distributions Reserve’s projected interest expenses. CBO projects that
from pensions. Additionally, higher projections of domestic the Federal Reserve System’s expenses will continue to
economic profits increased expected pass-through business exceed its income through 2025. In addition, CBO
income, which is taxed as individual income. increased its projections of the size of both the assets
and liabilities held by the Federal Reserve, a change that
After 2026, receipts from individual income taxes are boosted projected remittances in the longer term.
now projected to be lower, on net, than they were pro-
jected to be last May. Those downward revisions result Other Revenues. CBO raised its projections of revenues
from several factors. Projected overall wage income over from estate and gift taxes, customs duties, and excise
the next decade was revised upward by 1 percent, which taxes over the 2024–2033 period by a total of $37 billion
boosted receipts. But an upward revision of 3 percent (or 1 percent) to account for changes in its economic
to the agency’s projections of the size of the labor force forecast. Most of that increase resulted from higher pro-
caused projections of average wages per worker to fall. jected asset values, which increased the expected tax base
As a result, a smaller share of income is taxed at higher for estate and gift taxes.
marginal tax rates in CBO’s current projections, which
lowered projected receipts. Other economic factors Technical Changes
that reduced projected individual income tax revenues Technical changes—those changes that are neither leg-
include lower projections of proprietors’ income and islative nor economic—result from a variety of factors,
higher projections of deductible mortgage interest; those such as revisions to CBO’s population projections, new
revisions were partially offset by higher projections of information or data from federal agencies (including
taxable interest income. actual outlays and revenues for fiscal year 2023), and
changes in the way programs are administered that affect
Payroll Taxes. Revisions to CBO’s economic forecast federal spending and revenues. Such changes increased
increased the agency’s estimate of payroll tax revenues CBO’s estimate of the deficit in 2024 by $0.1 trillion and
in 2024 by $8 billion (or less than 1 percent) and its boosted projected deficits over the 2024–2033 period by
projections of such revenues over the 2024–2033 period $1.1 trillion (see Table 3-1 on page 78).
by a total of $98 billion (or less than 1 percent). Higher
projections of wages and salaries more than offset Several technical changes stemmed from administra-
reductions in projected proprietors’ income. In addition, tive actions. Of the four administrative actions with
a larger share of earnings is now projected to fall below the largest effects on CBO’s baseline projections, two
the taxable maximum for Social Security taxes, boosting increased the projected cumulative deficit for the 2024–
projected payroll taxes. 2033 period: a rule proposed by the Environmental
Protection Agency that would impose more stringent
Corporate Income Taxes. To account for changes in its standards to limit vehicle emissions and a final rule
economic forecast, CBO raised its estimate of corporate that made changes to income-driven repayment (IDR)
income tax revenues in 2024 by $72 billion (or 15 per- plans for federal student loans.7 Two other adminis-
cent) and its projections of such revenues over the 2024– trative actions reduced the projected deficit: the IRS’s
2033 period by $541 billion (or 11 percent). Those
changes resulted from increases in the agency’s projec- 7. When an agency publishes a proposed rule in the Federal
tions of corporate profits over the next decade. Projected Register, CBO generally does not incorporate an estimate of the
domestic corporate profits, which make up most of the total estimated effects of the rule as proposed into its baseline
projections. Rather, the agency typically incorporates a portion of
corporate income tax base, rose by 15 percent.
those effects based on the assigned probability (often 50 percent)
that the rule will be implemented to reflect the uncertainty about
Federal Reserve Remittances. Revisions to CBO’s eco- whether and how the rule will ultimately be carried out. After
nomic forecast reduced its estimate of remittances from the final version of a rule is published, CBO incorporates the
the Federal Reserve in 2024 by $3 billion and its projec- total estimated effects of the final rule into its subsequent cost
tions of such remittances over the 2024–2033 period by estimates and baseline projections. See Congressional Budget
Office, CBO Explains How It Develops the Budget Baseline
$38 billion (or 6 percent). The agency’s projections of (April 2023), www.cbo.gov/publication/58916.
postponement of 2023 filing deadlines for certain or older, which increased the projected number of Old-
taxpayers, which shifted income tax revenues that would Age and Survivors Insurance beneficiaries.
otherwise have been collected that year into 2024, and
actions taken by the Federal Deposit Insurance Corpo Clean Vehicle and Energy-Related Tax Credits. For
ration (FDIC) in 2023 to resolve bank failures, which technical reasons, the estimated outlay portion of clean
will lower outlays over the next few years as the FDIC vehicle and energy-related tax credits in 2024 rose
recovers the payments it made to resolve those failures. by $5 billion, and projected outlays for those credits
over the 2024–2033 period increased by $124 billion.
Changes in Outlays
Outlays for clean vehicle tax credits are projected to
Taken together, technical revisions increased CBO’s esti-
be $73 billion over the 2024–2033 period. In CBO’s
mate of outlays in 2024 by $0.1 trillion (or 1 percent)
May 2023 projections—which were based on the cost
and its projections of outlays over the 2024–2033 period
estimate prepared by the staff of the Joint Committee
by $0.8 trillion (or 1 percent).
on Taxation (JCT) when the credits were enacted in
August 2022 as part of the 2022 reconciliation act—
Mandatory Outlays. CBO increased its projections of
clean vehicle credits reduced tax revenues and had no
outlays for several mandatory programs and decreased
effect on outlays. Guidance from the Treasury about how
them for others to account for revisions to its demo-
clean vehicle tax credits may be claimed led CBO to
graphic projections, updated projections of enrollment in
attribute a portion of clean vehicle credits to outlays in
benefit programs, and changes in other technical factors
its current projections. In addition, outlays for energy-
that underlie those spending projections (see Figure 3-3).
related credits in CBO’s current projections are $51 bil-
On net, technical changes to CBO’s projections increased
lion more than they were in the May 2023 projections,
its estimate of mandatory outlays in 2024 by $45 billion
which were based on JCT’s initial estimate. That change
(or 1 percent) and its projections of such outlays over the
largely reflects an increase in projected investment in
2024–2033 period by $0.6 trillion (or 1 percent).
battery manufacturing, which qualifies for the advanced
manufacturing production credit enacted as part of the
Medicare. CBO’s estimate of outlays for Medicare in
2022 reconciliation act (see Box 3-1 on page 86).
2024 rose by $24 billion (or 3 percent) and its pro-
jections of outlays for the program over the 2024–
Veterans’ Benefits. CBO lowered its projections
2033 period increased by $0.2 trillion (or 2 percent)
of spending for veterans’ benefits over the 2024–
because of technical revisions. Two factors explain most
2033 period by $111 billion (or 4 percent) for technical
of that increase over the 10-year period. First, outlays
reasons. That net decrease is largely the result of two
for Medicare in 2023 were higher than expected, so
partially offsetting factors. CBO increased its projections
CBO increased its projections of such outlays in later
of outlays for disability compensation over the 10-year
years. Second, CBO reduced its projections of mortality
period by $169 billion because of faster-than-expected
from COVID-19 and, as a result, increased its projec-
growth in disability compensation outlays in 2023. That
tions of the population age 65 or older.8 To account for
increase was more than offset by a decrease in projected
the increase in its projection of that population, CBO
outlays from the toxic exposures fund.
revised its projections of enrollment in Medicare upward,
resulting in larger projected outlays for the program than
Medicaid. Technical revisions increased CBO’s projec-
those in the agency’s May 2023 baseline projections.
tions of outlays for Medicaid over the 2024–2033 period
by $67 billion. Those increases are the net result of two
Social Security. CBO increased its projections of out-
mostly offsetting factors. First, actual outlays in 2023 were
lays for Social Security over the 2024–2033 period by
higher than expected, causing CBO to raise its projections
$0.2 trillion (or 1 percent) for technical reasons. About
of spending for the program in future years. That increase
half of that increase stems from higher-than-projected
was partially offset by interactions associated with the
actual outlays in 2023 and the beginning of 2024. The
winding down in 2023 of policies that were put in place
other half of the increase results from the upward revi-
during the coronavirus pandemic. During the public
sion to the agency’s projections of the population age 65
health emergency brought on by the pandemic, states were
required to provide continuous eligibility for all Medicaid
8. Congressional Budget Office, The Demographic Outlook: 2024 to enrollees so that they could maintain their coverage
2054 (January 2024), www.cbo.gov/publication/59697.
Figure 3-3 .
Key Changes in CBO’s Technical Projections Since May 2023

Population age 65 or older Medicaid enrollment
Millions of people Millions of people
Current projection
75 100
May 2023 projection May 2023
75 Current
50
50
25 Because outlays for Medicaid were greater than

expected in 2023, CBO increased projected outlays
25
CBO increased its projection of the number of people over the next several years, but other factors,
age 65 or older in 2033 by 1 million, which drove up including lower estimates of enrollment beginning
projected spending on Social Security and Medicare. in 2024, reduced projected outlays in later years.
0 0
2021 2023 2025 2027 2029 2031 2033 2021 2023 2025 2027 2029 2031 2033
Capital gains realizations Veterans’ disability compensation, average annual benefit

Percentage of GDP Thousands of dollars
10 40
Current
8
30
May 2023 May 2023
6
20
4 Current
Because average compensation for veterans with
disabilities was greater than anticipated in 2023,
10
2 Smaller-than-expected realizations of capital gains CBO increased its projections of average benefits
led CBO to reduce its projections of individual over the next decade, boosting projected outlays
income tax revenues over the next few years. for veterans’ disability compensation.
0 0
2021 2023 2025 2027 2029 2031 2033 2021 2023 2025 2027 2029 2031 2033
The projections of the population and of capital gains realizations are on a calendar year basis. The projections of Medicaid enrollment and veterans’ disability
compensation are on a fiscal year basis.
without interruption, and in exchange, the federal govern- new plan’s more generous terms. All those factors increased
ment temporarily increased the portion of the program’s costs of IDR plans in CBO’s projections.10
costs that it covered. CBO previously underestimated the
increases in enrollment stemming from the continuous Coronavirus Refundable Tax Credits. CBO increased its
eligibility policy, so more beneficiaries than the agency projections of total outlays for the coronavirus refund-
anticipated have lost coverage since the policy ended. able tax credits—a group of tax credits for employers
intended to enable them to provide sick and family leave,
Deposit Insurance. CBO decreased its projections of retain employees, and maintain health insurance for
outlays for deposit insurance over the 2024–2033 period certain workers during the pandemic. In CBO’s current
by $67 billion for technical reasons. Four bank failures projections, outlays for those credits are $21 billion more
occurred during 2023 (three in the spring and one later in 2024, and $13 billion more in 2025, than they were
in the year). The agency’s May 2023 baseline projections in the agency’s May 2023 projections. Those revisions
reflected the expectation that the FDIC would recover were made because outlays for the employee retention
any payments it made related to the resolution of bank tax credit in 2023 were higher than anticipated. The
failures in 2023 in that same year. (The FDIC recovers IRS announced a moratorium on processing new claims
such payments by liquidating assets and by raising the for that credit in September 2023, but CBO anticipates
premiums it collects from FDIC-insured institutions.) additional outlays will be made this year and next.11
The FDIC did not recover as much as CBO anticipated
in 2023. Those recoveries—which are reflected in the Other Mandatory Programs. Technical changes
budget as negative outlays—are now projected to occur increased CBO’s estimate of outlays for other mandatory
over the next few years.9 programs by $0.1 trillion over the 2024–2033 period.
Student Loans. CBO’s projections of outlays for student Discretionary Outlays. Technical changes lowered
loan programs over the 2024–2033 period are $57 bil- CBO’s projections of discretionary outlays over the
lion higher than they were in May 2023. Those increases 2024–2033 period by $56 billion (or less than 1 per-
stem primarily from the inclusion of CBO’s projections cent). The largest changes were to estimated outlays
of the full cost of the Administration’s changes to the in 2024; those revisions totaled $27 billion, on net,
income-driven repayment plans that were finalized by the and were dispersed across the budget. In general, they
Department of Education in June 2023. Following its stemmed from adjustments to better reflect the recent
typical procedure for accounting for proposed rules, CBO rates at which discretionary budget authority has trans-
incorporated only half of the projected cost of the changes lated into outlays. The largest such adjustment—made to
to the IDR plans in its May 2023 baseline. For most the rate applied to funding for Indian Health Services—
borrowers, the changes make the IDR plans more gener- reduced total projected outlays for that program over the
ous, and many borrowers selecting an IDR plan will now 2024–2033 period by $48 billion.
pay less in principal and interest than they would have
previously paid. In addition, in CBO’s estimation, some Net Interest Outlays. Technical changes increased
students who would have borrowed before the change CBO’s projections of net outlays for interest over the
will now borrow more, and other students who previously 2024–2033 period by $322 billion (or 3 percent). Most
would not have borrowed will now do so because of the of that increase is attributable to debt-service costs. All
told, technical changes to revenues and noninterest
10. Under the Federal Credit Reform Act of 1990, the present value of
9. As part of the resolution of the failure of First Republic Bank in expected reductions of cash inflows to the Treasury are recorded in
spring 2023, the FDIC (acting in its capacity as receiver) received the federal budget. A present value is a single number that expresses
a purchase money note from J.P. Morgan for $50 billion to be a flow of current and future income (or payments) in terms of
repaid within five years. In September 2023, the FDIC sold an equivalent lump sum received (or paid) at a specific time. The
the cash flows from the note to the Federal Financing Bank in present value depends on the rate of interest (the discount rate)
exchange for $50 billion in borrowing, financed through the that is used to translate future cash flows into current dollars.
issuance of Treasury securities. That transaction was recorded in
the federal budget as a $50 billion outlay in 2023 by the FDIC. 11. For further details about employee retention tax credits in
CBO expects the note to be repaid in 2028, in which case the 2023, see Congressional Budget Office, The Accuracy of CBO’s
transaction would be recorded in the federal budget as a receipt Budget Projections for Fiscal Year 2023 (December 2023), Box 2,
of $50 billion in that year. www.cbo.gov/publication/59682.
Box 3-1 .
Technical Changes to CBO’s Baseline Projections to Account for Developments

Affecting Energy-Related Tax Provisions
The Congressional Budget Office has revised the baseline pro- CBO’s typical practice for rules that are not yet finalized)
jections of revenues and outlays to account for several techni- increased projected claims for clean vehicle tax credits and
cal factors pertaining to energy-related tax provisions. Those reduced projected revenues from excise taxes on gasoline.1
factors include a rule proposed by the Environmental Protec-
Additionally, the projections of amounts claimed for the clean
tion Agency (EPA) that would change standards for vehicle
vehicle tax credits were revised upward to reflect guidance
emissions, guidance from the Treasury about certain provisions
from the Treasury that provided greater flexibility than JCT
of the 2022 reconciliation act, and market developments.
anticipated when it prepared its estimates in 2022, as well as
The estimates of the effects of the energy-related provisions recent information about vehicle sales.2 For example, the Trea-
that underlie the projections in CBO’s May 2023 baseline were sury determined that credits claimed by businesses for vehicles
prepared by the staff of the Joint Committee on Taxation (JCT) leased to individuals are not subject to the restrictions that
in August 2022 when the 2022 reconciliation act was enacted. apply to credits claimed directly by individuals—including limits
After considering technical factors as of December 5, 2023, on a buyer’s income and on the price of an eligible vehicle as
CBO revised the projections of amounts claimed for clean well as rules about where critical minerals are sourced, battery
vehicle and energy-related tax credits; they are now substan- components are manufactured, and final vehicle assembly
tially higher than the amounts originally projected by JCT. Those occurs. Dealers and buyers have responded to that guidance
changes reduced projected revenues from individual and corpo- by leasing more electric vehicles than JCT anticipated when
rate income taxes and increased projected outlays for payments preparing its 2022 estimates. In separate guidance, the Trea-
related to those credits. Technical factors also led CBO to lower sury outlined the process that dealers can follow beginning
its projections of revenues from excise taxes on gasoline. in 2024 to receive payments for electric vehicle credits that
buyers transfer to them so that the dealers can pass the credit
Together, those technical revisions increased CBO’s estimate of
on to buyers at the time of purchase. Payments for those trans-
the budget deficit in 2024 by $25 billion and its projections of
ferred credits are recorded in the budget as outlays.
the cumulative deficit from 2024 to 2033 by $428 billion. More
than half of the increase in the 10-year deficit—$224 billion—is CBO also revised estimates of the effects of other energy-
from revised projections of amounts claimed for clean vehicle related tax provisions that were part of the 2022 reconciliation
tax credits and of revenues from excise taxes on gasoline act. Those revisions—which reduced projected revenues over
(see the figure). Of that increase, $151 billion is attributable to the 2024–2033 period by $153 billion and increased projected
reductions in projected revenues, and $73 billion to increases
in projected outlays. 1. For more information about how CBO estimates the budgetary effects of
The largest factor contributing to those revisions is that, in proposed regulations, see Congressional Budget Office, CBO Explains
How It Develops the Budget Baseline (April 2023), www.cbo.gov/
April 2023 (after CBO finalized its May baseline), the EPA pro-
publication/58916.
posed more stringent vehicle emissions standards that would
begin with the 2027 model year. Incorporating that proposed 2. Joint Committee on Taxation, Factors Considered When Estimating the
Revenue Effects of the Energy Provisions of Public Law 117-169 and
rule into the baseline (with a 50-percent weight, following
Subsequent Developments (May 2023), http://tinyurl.com/3mcs95v5.
Continued
outlays increased CBO’s projections of deficits over the Changes in Revenues

10-year period by $0.9 trillion, and the projected cost For technical reasons, CBO’s estimate of revenues in
of servicing the additional debt stemming from those 2024 fell by $69 billion (or 1 percent), and its projec-
higher deficits is $232 billion. Moreover, debt at the end tions of revenues over the 2024–2033 period dropped by
of 2023 was greater than CBO projected in May 2023. $309 billion (or 1 percent). CBO revised downward its
To account for that additional debt, CBO increased its projections of receipts from individual income taxes and
projections of net interest costs over the 10-year period by other revenues in 2024, but those revisions were partially
$90 billion. offset by upward revisions to the agency’s projections of
Box 3-1. Continued
Technical Changes to CBO’s Baseline Projections to Account for Developments

Affecting Energy-Related Tax Provisions
outlays by $51 billion—added a total of $204 billion to the The budgetary effects of energy-related tax provisions remain
agency’s projections of deficits over the 10-year period. Most highly uncertain. One source of that uncertainty is the pace of
significantly, CBO and JCT now expect greater investment in deployment and use of low-emissions technologies and elec-
the manufacturing of batteries and in wind and solar power tric vehicles. In addition, taxpayers have yet to claim certain
generation than was anticipated in August 2022. In addi- tax credits that were enacted in the 2022 reconciliation act,
tion, CBO reduced the projected amounts claimed for other including the advanced manufacturing production credit. The
energy-related business tax credits following their expiration, budgetary effects of those credits will be better understood as
partially offsetting the increase in the deficit from the larger more detailed tax data become available. Moreover, adminis-
amounts claimed for clean vehicle credits and the reduced trative actions taken by federal or state agencies, including the
revenues from gasoline excise taxes in 2033. Treasury, could affect budgetary outcomes.
Increases in Projected Deficits From Technical Factors Affecting Energy-Related Tax Provisions
Billions of dollars
60
50 CBO increased its

projections of deficits to
40 incorporate the effects of
Total the EPA’s proposed rule to
30 change vehicle emissions
standards, new guidance
20
from the Treasury about
certain provisions of
10
the 2022 reconciliation
0 act, and market
developments. Vehicle-
-10 related changes become
2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 larger as the proposed
rule takes effect.
Wind, solar, battery manufacturing, and certain other tax credits
Clean vehicle tax credits and gasoline excise taxes

EPA = Environmental Protection Agency.
receipts from corporate income and payroll taxes in that Individual Income Taxes. Technical revisions reduced
year. Over the 2024–2033 period, individual income CBO’s estimate of individual income tax receipts in
tax receipts, corporate income tax receipts, and other 2024 by $82 billion (or 3 percent) and its projections of
revenues are now projected to be lower than the agency such receipts over the 2024–2033 period by $8 billion
projected last year, but receipts from payroll taxes are (or less than 1 percent).
projected to be higher.
CBO lowered its projection of individual income tax
receipts in 2024 in part because 2023 receipts were
significantly lower than it anticipated.12 Although some of In later years of the projection period, the effects of fac-
the factors leading to that weakness in receipts are expected tors contributing to reductions in projected receipts are
to continue and thus reduce projected revenues in the more than offset by increases in the agency’s projections
future, one reason for the lower-than-expected receipts in of distributions from taxable retirement accounts. Those
2023—administrative actions taken by the IRS—increased increases stem from upward revisions to historical data
CBO’s estimate of receipts from individual income taxes on pension asset values in calendar years 2020 and 2021
for 2024. For taxpayers affected by natural disasters, and from new information about such values in 2022. In
including most taxpayers in California, the IRS postponed addition, on the basis of newly available data from past
deadlines for payments that would typically have been due years’ wage and tax statements, CBO now anticipates
in fiscal year 2023, allowing those payments to be made that contributions to Roth retirement accounts, which
in 2024 instead. CBO projects that about $60 billion in are nondeductible, will make up a larger share of total
individual income tax payments that would otherwise retirement contributions than the agency previously
have been due in 2023 will now be collected in 2024. That expected. Both of those changes increased projected
upward revision to projected individual income tax receipts individual income tax receipts.
in 2024 partially offset other factors that reduced projec-
tions of such receipts for the year. Taken together, technical changes resulted in a net
increase in the agency’s projections of receipts from indi-
Several other factors contributed to individual income vidual income taxes in every year from 2027 to 2033.
tax receipts’ being lower than anticipated in 2023. Recent
data for calendar year 2022 show that capital gains reali- Payroll Taxes. For technical reasons, CBO increased
zations were smaller than anticipated; projected individual its estimate of payroll tax revenues in 2024 by $22 bil-
income tax receipts were revised downward for 2024 as lion (or 1 percent) and its projections of such revenues
a result. That downward revision would have been even over the 2024–2033 period by a total of $367 billion
greater if not for an unanticipated increase in asset values (or 2 percent). Those upward revisions resulted in part
in calendar year 2023. In addition, more employers than from updated projections of the distribution of earnings,
expected claimed the employee retention tax credit in which indicate that a larger share of total earnings will
2023, and CBO anticipates that additional claims will fall below the maximum taxable amount ($168,600 in
be made in 2024. Moreover, CBO revised downward its calendar year 2024).
projections of high-wage earners’ share of total wages and
salaries on the basis of data for calendar year 2022 that Corporate Income Taxes. For technical reasons, CBO
showed a smaller-than-expected share of earnings accruing raised its estimate of corporate income tax revenues in
to high-wage earners. When that share is smaller, indi- 2024 by $19 billion (or nearly 4 percent) and lowered its
vidual income tax revenues fall because people with less projections of such revenues for the 2024–2033 period by
income are subject to lower income tax rates. $517 billion (or 10 percent). CBO increased its estimate
for 2024 because certain corporate tax payments previ-
The downward revisions due to the new information ously expected to be made in 2023 will instead be made
about the historical wage distribution persist throughout in 2024. Corporate tax payments from taxpayers affected
the projection period. In addition, other changes affect by disasters were deferred in 2023, and CBO anticipates
projections of individual income tax revenues over the that those payments will be made in 2024. In addition,
2024–2033 period. CBO revised downward its esti- the agency expects that initial payments for the new
mates of the share of business income being taxed at the minimum tax on the book income of certain corporations
individual level, reflecting the agency’s expectation that will be collected in 2024. CBO originally expected the
more business activity will be taxed under the corporate first payments for that tax, which was enacted as part of
income tax after provisions of the 2017 tax act expire at the 2022 reconciliation act, to be collected in 2023, but
the end of calendar year 2025. the IRS subsequently granted penalty relief for corpo-
rations that did not make estimated payments in 2023.
As a result of those two actions, CBO estimates, about
12. For further details on tax receipts in 2023, see Congressional
Budget Office, The Accuracy of CBO’s Budget Projections for Fiscal $60 billion in corporate tax payments that would have
Year 2023 (December 2023), www.cbo.gov/publication/59682. been received in 2023 will now be collected in 2024.
Technical changes lowered CBO’s projections of corpo- for refunds and tax credits for the nontaxable use of gas-
rate income tax receipts for 2025 to 2033 by $535 billion oline in 2023. After averaging about $1 billion over the
(or 12 percent), on net. CBO increased its projections of previous 10 years, those refunds and credits are estimated
deductions for foreign-derived investment income and its to have totaled $18 billion in 2023. Because the cause of
projections of amounts claimed for foreign tax and other those larger-than-anticipated refunds and credits is cur-
credits, thereby reducing projected corporate income rently unknown, CBO projects that they will fall from
tax receipts. Those revisions were made in part to reflect that elevated level over the next several years.
recent tax data that indicate certain credits and deduc-
tions have been greater than anticipated. The projected The agency’s projections of excise tax receipts over the
amounts claimed for the energy-related tax credits that 2024–2033 period are lower, on net, than they were in
were part of the 2022 reconciliation act were also revised May 2023 for several additional reasons. CBO revised
upward (see Box 3-1 on page 86). In addition, CBO downward its projections of revenues from excise
revised downward its estimate of revenues generated by taxes on gasoline because it now expects vehicles’ fuel
the limitation on deductions for net interest. economy to improve more quickly than it previously
anticipated (in part as a result of rules proposed by the
Other technical changes increased projected corporate Environmental Protection Agency). In addition, pro-
income tax receipts, partially offsetting those downward jected receipts from excise taxes on tobacco were revised
revisions. One reason for such a change is that CBO now downward: CBO now expects a larger share of those
expects that more business activity than it previously products to avoid excise taxes as a result of a 2021 court
anticipated will be subject to the corporate income tax ruling.13 The agency also lowered its projections of
after certain provisions of the 2017 tax act that reduced receipts from the excise tax on chemicals in response
individual tax rates on business income expire at the end to smaller-than-anticipated collections in 2023. Those
of calendar year 2025. downward revisions were partially offset by an upward
revision to the agency’s projections of receipts from the
Other Revenues. Technical revisions lowered CBO’s excise tax on corporate stock repurchases.
estimate of other revenues, including customs duties
and excise taxes, in 2024 by $28 billion (or 11 per- 13. On August 23, 2021, the U.S. Court of Appeals for the
cent) and its projections of such revenues over the Federal Circuit upheld an earlier ruling by the U.S. Court of
International Trade in National Association of Manufacturers v.
2024–2033 period by $151 billion (or 4 percent).
Department of the Treasury. As a result of the ruling, tobacco
CBO lowered its projections of customs duties over and alcohol products that would normally be subject to excise
the 2024–2033 period by $111 billion (or 11 percent) taxes will receive a refund (or drawback) of those excise taxes
because collections of administratively imposed tariffs on in situations in which the merchandise can be matched to
imports from China have been smaller than projected. similar products that are exported or destroyed—even when
The agency also lowered its estimate of excise tax receipts no excise tax had previously been collected on the exported or
destroyed merchandise. Those drawbacks are often referred to as
in 2024 to reflect larger-than-expected amounts reported double drawbacks.
List of Tables and Figures
Tables
1-1. CBO’s Baseline Budget Projections, by Category 10
1-2. CBO’s Baseline Projections of Outlays and Deficits, Adjusted to Exclude Effects of Timing Shifts 11
1-3. CBO’s Baseline Projections of Federal Debt 14
1-4. CBO’s Baseline Projections of Mandatory Outlays, Adjusted to Exclude Effects of Timing Shifts 18
1-5. Changes in Discretionary Budget Authority From 2023 to 2024 21
1-6. CBO’s Baseline Projections of Discretionary Spending, Adjusted to Exclude Effects of Timing Shifts 30
1-7. CBO’s Baseline Projections of Revenues 32
1-8. CBO’s Baseline Projections of Smaller Sources of Revenues 36
1-9. Key Projections in CBO’s Baseline, Adjusted to Exclude Effects of Timing Shifts, Through 2054 39
2-1. CBO’s Economic Projections for Calendar Years 2024 to 2034 45
2-2. Projected Growth of Real GDP and Its Components 49
2-3. Key Inputs in CBO’s Projections of Real Potential GDP 55
2-4. CBO’s Current and Previous Economic Projections for Calendar Years 2023 to 2033 66
3-1. Changes in CBO’s Baseline Projections of the Deficit Since May 2023 78
Figures
1-1. Total Deficit, Net Interest Outlays, and Primary Deficit 12
1-2. Federal Debt Held by the Public 15
1-3. Total Federal Outlays and Revenues 27
1-4. Outlays, by Category 28
1-5. Revenues, by Category 33
1-6. Estimated Outlays, Revenues, and Tax Expenditures in 2024 38
1-7. Uncertainty of CBO’s Baseline Projections of the Budget Deficit 42
2-1. Growth of Real GDP 44
2-2. Spending on Consumer Goods as a Share of Nominal Consumer Spending 52
2-3. Average Annual Growth of Real Potential GDP and Its Components 56
2-4. Employment, Unemployment, and Wage Growth 57
2-5. Overall Inflation, Core Inflation, and Contributions to Overall Inflation 60
2-6. Interest Rates 61
2-7. Uncertainty of CBO’s Projections of Output, Unemployment, Inflation, and Interest Rates 65
2-8. Comparison of CBO’s Economic Forecasts With Those of the Blue Chip Forecasters 71
2-9. Comparison of CBO’s Economic Forecasts With Those in the Survey of Professional Forecasters 72
2-10. Comparison of CBO’s Economic Forecasts With Those of the Federal Reserve 73
3-1. Changes in CBO’s Baseline Projections of the 10-Year Deficit Since May 2023 76
3-2. Key Changes in CBO’s Economic Forecast Since February 2023 81
3-3. Key Changes in CBO’s Technical Projections Since May 2023 84
About This Document
This volume is one of a series of reports on the state of the budget and the economy that the
Congressional Budget Office issues each year. It satisfies the requirement of section 202(e) of the
Congressional Budget Act of 1974 for CBO to submit to the Committees on the Budget periodic
reports about fiscal policy and to provide baseline projections of the federal budget. In keeping with
CBO’s mandate to provide objective, impartial analysis, this report makes no recommendations.
CBO’s Panel of Economic Advisers commented on an early version of the economic forecast
underlying this report at a meeting in November 2023. At that time, members of the panel
were Katharine Abraham, Alan Auerbach, Markus Brunnermeier, Seth Carpenter, Steven Davis,
Kathryn Dominguez, Karen Dynan, Robert Hall, Jan Hatzius, Donald Kohn, Gregory Mankiw,
Giuseppe Moscarini, Emi Nakamura, Jonathan Parker, James Poterba, Valerie Ramey, Joshua Rauh,
Ayşegül Şahin, James Stock, Kevin Warsh, and Mark Zandi. Robin Brooks, Bart Hobijn, and
Brian Sack attended the panel’s meeting as guests. Although CBO’s outside advisers provided consid-
erable assistance, they are not responsible for the contents of this report.
The following pages list CBO’s staff members who contributed to this report by preparing the
economic, revenue, and spending projections; writing the report; reviewing, editing, fact-checking,
designing, and publishing it; compiling the supplemental materials posted along with it on CBO’s
website (www.cbo.gov/publication/59710); and providing other support.
CBO seeks feedback to make its work as useful as possible. Please send any comments to
[email protected].
Phillip L. Swagel
Director
February 2024
Economic Projections
The economic projections were prepared by the Macroeconomic Analysis Division, with contributions from analysts in
other divisions. That work was supervised by Richard DeKaser, Devrim Demirel, Robert Arnold, and Jaeger Nelson.
Nicholas Abushacra · Housing, model and data management

Joyce Bai · Financial markets
Grace Berry · Motor vehicle sector, research assistance
Aaron Betz · Effects of fiscal policy, potential output, productivity
Daniel Fried · Net exports, exchange rates, energy prices
Edward Gamber · Labor markets, current-quarter analysis
Ron Gecan · Energy prices
Mark Lasky · Business investment, housing
Chandler Lester · Inflation, house prices
Kyoung Mook Lim · Federal, state, and local government spending and revenues, effects of fiscal policy
Michael McGrane · Financial markets, Federal Reserve’s balance sheet, quantifying uncertainty
Christine Ostrowski · Consumer spending, income
Jeffrey Schafer · Interest rates, monetary policy
Byoung Hark Yoo · Quantifying uncertainty
Revenue Projections
The revenue projections were prepared by the Tax Analysis Division, supervised by John McClelland, Joseph Rosenberg,
Edward Harris, and Joshua Shakin. In addition, the staff of the Joint Committee on Taxation provided valuable assistance.
Kathleen Burke · Individual income taxes, wage distribution

Dorian Carloni · Business taxation
Nathaniel Frentz · Federal Reserve System’s remittances, miscellaneous fees and fines
Bilal Habib · Tax modeling
Eshika Kaul · Excise taxes
Shannon Mok · Estate and gift taxes
Omar Morales · Excise taxes
James Pearce · Capital gains realizations, wage distribution, tax modeling
Kevin Perese · Tax modeling
Molly Saunders-Scott · International taxation, business taxation
Kurt Seibert · Payroll taxes, depreciation, tax modeling
Jennifer Shand · Corporate income taxes
Molly Sherlock · Energy and excise taxes
Naveen Singhal · Capital gains realizations, tax modeling
ABOUT THIS DOCUMENT THE BUDGET AND ECONOMIC OUTLOOK: 2024 TO 2034 93
Ellen Steele · Refundable tax credits

Emma Uebelhor · Customs duties
James Williamson · Retirement income, estate and gift taxes
Spending Projections
The spending projections were prepared by the Budget Analysis Division, with contributions from analysts in other
divisions. That work was supervised by Chad Chirico, Christina Hawley Anthony, Sam Papenfuss, Barry Blom,
Megan Carroll, Elizabeth Cove Delisle, Sean Dunbar, Kathleen FitzGerald, Ann E. Futrell, Justin Humphrey,
Sarah Masi, David Newman, Robert Reese, Asha Saavoss, and Emily Stern of the Budget Analysis Division, as well as by
Chapin White, Tamara Hayford, and Alexandra Minicozzi of the Health Analysis Division and by Sebastien Gay of the
Financial Analysis Division.
Defense, International Affairs, and Veterans’ Affairs

Sunita D’Monte · International affairs
Caroline Dorminey · Defense (procurement)
Paul B. A. Holland · Veterans’ education benefits, reservists’ education benefits, veterans’ home loans
Etaf Khan · Veterans’ health care, toxic exposures fund, international food assistance
William Ma · Defense (operation and maintenance, intelligence programs, other defense programs)
Christopher Mann · Defense (facilities, energy, nuclear programs)
Aldo Prosperi · Defense (research and development, cybersecurity)
David Rafferty · Military retirement, compensation for radiation exposure and energy employees’
occupational illness, immigration
Dawn Sauter Regan · Defense (military personnel)
Matt Schmit · Military health care
Logan Smith · Veterans’ compensation and pensions, other benefits for disabled veterans, toxic exposures fund
Education, Finance, and Housing
Julia Aman · F
ederal Deposit Insurance Corporation, National Credit Union Administration, Orderly Liquidation
Fund, Federal Housing Administration, Bureau of Indian Affairs
Joyce Bai · Student loans
Margot Berman · Student loans
Jeremy Crimm · Law enforcement, justice assistance, homeland security, Postal Service
Michael Falkenheim · Federal Deposit Insurance Corporation
David Hughes · Commerce, Consumer Financial Protection Bureau, Universal Service Fund
Wendy Kiska · Pension Benefit Guaranty Corporation, student loans
Leah Koestner · Student loans, higher education programs
Noah Meyerson · Pension Benefit Guaranty Corporation
Zunara Naeem · Fannie Mae and Freddie Mac, Federal Housing Finance Agency, housing assistance
Garrett Quenneville · Elementary and secondary education, Pell grants
Mitchell Remy · Veterans’ housing, Fannie Mae and Freddie Mac
Jon Sperl · Community and regional development, Federal Emergency Management Agency, judicial branch,
administration of justice
Aurora Swanson · Securities and Exchange Commission, Small Business Administration
Byoung Hark Yoo · Fannie Mae and Freddie Mac, Federal Housing Administration
Health
Austin Barselau · Medicare
Ezra Cohn · Food and Drug Administration, prescription drugs, National Institutes of Health
Ryan Greenfield · Prescription drugs, Food and Drug Administration
Jessica Hale · Health insurance marketplaces, private health insurance
Cornelia Hall · Medicare
Caroline Hanson · Health insurance coverage
Nianyi Hong · Health insurance coverage
Ben Hopkins · Health insurance coverage
Claire Hou · Health insurance coverage
Robert Lindsay · Health insurance coverage
Sean Lyons · Health insurance coverage
Julianna Mack · Health insurance coverage
Eamon Molloy · Health insurance coverage
Hudson Osgood · Medicare, Public Health Service
Romain Parsad · Health insurance coverage
Allison Percy · Health insurance coverage
Aaron Pervin · Medicaid
Lara Robillard · Medicare
Sarah Sajewski · Medicare, Centers for Disease Control and Prevention
Julia Sheriff · Medicare
Robert Stewart · Medicaid, Children’s Health Insurance Program, Indian Health Service
Carolyn Ugolino · Medicaid, Health Resources and Services Administration
Emily Vreeland · Health insurance marketplaces, private health insurance, Federal Employees Health Benefits program
Kate Young · Medicaid, prescription drugs, Substance Abuse and Mental Health Services Administration
Katie Zhang · Health insurance marketplaces, private health insurance
Chris Zogby · Health insurance coverage
Noah Zwiefel · Medicare
Income Security
Susan Yeh Beyer · Child nutrition and other nutrition programs, Smithsonian Institution, arts and humanities
Meredith Decker · Unemployment insurance, job training programs
Jennifer Gray · Supplemental Nutrition Assistance Program and other nutrition programs
ABOUT THIS DOCUMENT THE BUDGET AND ECONOMIC OUTLOOK: 2024 TO 2034 95
Jada Ho · Refugee and Entrant Assistance program, Child Care and Development Block Grant
Justin Latus · Supplemental Security Income, Administration on Aging
Michael McGrane · Extended benefits for unemployment insurance
Susanne Mehlman · Temporary Assistance for Needy Families, child support enforcement, foster care, child care
programs, Low Income Home Energy Assistance Program
Noah Meyerson · Old-Age and Survivors Insurance, Social Security trust funds
Delaney Smith · Disability Insurance, rehabilitation services, Social Services Block Grant, support programs for
children and families
Natural and Physical Resources
Tiffany Arthur · Agriculture
Kelly Durand · General government
David Hughes · Outer Continental Shelf receipts
Aaron Krupkin · Energy, air, water, and other transportation
Willow Latham-Proença · Energy, highways, mass transit, Amtrak, spectrum auction receipts
Lilia G. Ledezma · Conservation and land management
Erik O’Donoghue · Agriculture
Matthew Pickford · General government, legislative branch, recreational resources
Alaina Rhee · Energy
Aurora Swanson · Water resources, pollution control and abatement, other natural resources
Other Areas and Functions
Shane Beaulieu · Computer applications and data systems
Breanna Browne-Pike · Appropriation bills (Labor, Health and Human Services, and Education; Legislative Branch)
Aaron Feinstein · Other interest, monthly Treasury data, historical data
Avi Lerner · Debt, interest on the public debt
Amber Marcellino · Federal civilian retirement
George McArdle · Appropriation bills (Military Construction and Veterans Affairs; State and Foreign Operations)
Amy McConnel · Appropriation bills (Commerce, Justice, and Science; Financial Services and General Government)
Dan Ready · Various federal retirement programs, national income and product accounts, federal pay
Justin Riordan · Budget concepts and process; sequestration, appropriation bills (Labor, Health and Human Services,
and Education)
Mark Sanford · Appropriation bills (Agriculture and Food and Drug Administration; Defense)
Esther Steinbock · Appropriation bills (Energy and Water Development; Transportation and Housing and Urban
Development)
J’nell Blanco Suchy · Appropriation bills (Homeland Security; Interior and Environment), scorekeeping for
authorization acts
Patrice Watson · Computer applications and data systems
Olivia Yang · Budget projections and appropriation bills
Long-Term Spending Projections

The long-term spending projections were prepared by the Labor, Income Security, and Long-Term Analysis Division,
with contributions from analysts in other divisions. That work was supervised by Julie Topoleski and Molly Dahl. The
projections were prepared by Alia Abdelkader, Xinzhe Cheng, Michael McGrane, and Charles Pineles-Mark.
Writing
Dan Ready prepared the executive summary, with assistance from Daniel Fried. Amber Marcellino, Dan Ready, and
Nathaniel Frentz wrote Chapter 1, with assistance from Molly Dahl, Aaron Feinstein, and Avi Lerner. Daniel Fried
wrote Chapter 2, with contributions from Edward Gamber. Aaron Feinstein, Jennifer Shand, and Molly Sherlock
wrote Chapter 3.
Reviewing, Editing, Fact-Checking, Designing, and Publishing

Mark Doms, Mark Hadley, Jeffrey Kling, and Robert Sunshine reviewed the report. The editing and publishing
were handled by CBO’s editing and publishing group, supervised by Lora Engdahl and John Skeen, and the agency’s
communications team, supervised by Deborah Kilroe.
Christine Bogusz, Christine Browne, Scott Craver, Christian Howlett, Rebecca Lanning, Loretta Lettner, Bo Peery,
and Caitlin Verboon edited and proofread the report; Casey Labrack and Jorge Salazar created the graphics;
R. L. Rebach prepared the text for publication; and Annette Kalicki published the report on CBO’s website.
Nicholas Abushacra, Grace Berry, Erich Dvorak, Eshika Kaul, William Ma, Christopher Mann, Omar Morales,
Aldo Prosperi, Justin Riordan, Matt Schmit, Logan Smith, and Lucy Yuan fact-checked the report.
Nicholas Abushacra and Grace Berry coordinated the preparation of figures and tables related to economic projections.
Nicholas Abushacra, Grace Berry, Aaron Feinstein, Eshika Kaul, Avi Lerner, Omar Morales, Charles Pineles-Mark,
and Dan Ready compiled data and supplemental information, and Annette Kalicki coordinated the presentation of
those materials on CBO’s website.

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The Budget and

The Federal Budget

The U.S. Economy

The Economic Outlook, by Calendar Year

Chapter 1: The Budget Outlook 9

Chapter 2: The Economic Outlook 43

Chapter 3: Changes in CBO’s Baseline Projections Since May 2023 75

List of Tables and Figures 90

About This Document 91

The Budget Outlook

Changes in CBO’s Budget Projections Revenues:

The Budget Outlook, by Fiscal Year

The Budget Outlook in Six Figures

Total Outlays and Percentage of GDP

3 Corporate income taxes

Total Deficit, Net Percentage of GDP

Changes in CBO’s Baseline Projections Trillions of dollars

Federal Debt Held Percentage of GDP

The Economic Outlook

Interest Rates The growth of real

The Economic Outlook, by Calendar Year

The Economic Outlook in Six Figures

Outlook for Consumer Spending on Goods and Services

The Labor Force Outlook for

Overall Inflation and Core Inflation

Overview After 2034, deficits continue to increase in relation to

CBO’s Baseline Budget Projections, by Category

CBO’s Baseline Projections of Outlays and Deficits,

Total Deficit, Net Interest Outlays, and Primary Deficit

In CBO’s projections, the

CBO’s Baseline Projections of Federal Debt

Changes in debt held by the public

Debt held by the public at

Debt minus financial assets

Federal Reserve’s holdings of

Debt minus financial assets and

Average interest rate on

Federal Debt Held by the Public

Federal debt held by

Outlays resources (known as sequestration) that are required under

7. Each year, some mandatory programs are modified by provisions

Table 1-4. Continued

Effects that timing shifts have on

Data source: Congressional Budget Office. See www.cbo.gov/publication/59710#data.

Changes in Discretionary Budget Authority From 2023 to 2024

Total discretionary budget authority

Data source: Congressional Budget Office. See www.cbo.gov/publication/59710#data.

How the Fiscal Responsibility Act Affects

2. Congressional Budget Office, cost estimate for H.R. 6363, the

Box 1-1. Continued

How the Fiscal Responsibility Act Affects

Data source: Congressional Budget Office. See www.cbo.gov/publication/59710#data.

Box 1-2. Continued

Funding in baseline 850 * 750 127 1,726

Data source: Congressional Budget Office. See www.cbo.gov/publication/59710#data.

Total Federal Outlays and Revenues

Data source: Congressional Budget Office. See www.cbo.gov/publication/59710#data.

Data source: Congressional Budget Office. See www.cbo.gov/publication/59710#data.