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CBO Releases Updated Budget and Economic Outlook: 2024 to 2034

Stabenow uses CBO updates to make her farm bill case

The Congressional Budget Office (CBO) released its updated projections for the federal budget and economy from 2024 to 2034. Link to report.

     Key highlights include:

     Budget projections:

• 2024 deficit: Projected at $1.9 trillion, or $2.0 trillion (7.0% of GDP) when adjusted for timing shifts.
• 2034 deficit: Expected to reach $2.8 trillion (6.9% of GDP).
• 2024-2034 total deficit: Estimated at $24 trillion, 70% larger than the historical average relative to economic output.
• Federal outlays: Expected to rise from 24.2% of GDP in 2024 to 24.9% in 2034, driven by increased interest costs and spending on Medicare and Social Security.
• Federal revenues: Forecasted to increase from 17.2% of GDP in 2024 to 18.0% by 2027, stabilizing near that level through 2034.
• Public debt: Projected to rise from 99% of GDP in 2024 to 122% in 2034, surpassing its historical peak.

     Changes in budget projections:

• The 2024 deficit is $0.4 trillion higher than previously projected in February 2024, due to:
  • $145 billion increase in student loan outlays.
  • $70 billion increase in deposit insurance outlays.
  • $60 billion increase due to newly enacted legislation.
  • $50 billion increase in Medicaid outlays.
• Over the 2025-2034 period, the cumulative deficit is larger by $2.1 trillion, mainly due to newly enacted legislation, including $95 billion for aid to Ukraine, Israel, and the Indo-Pacific region.

     Economic projections:

• Economic growth: Expected to slow from 3.1% in 2023 to 2.0% in 2024.
• Inflation: Projected to be slightly lower in 2024 than in 2023, due to recovered supply chains, higher unemployment, and increased long-term interest rates.
• Interest rates: Short-term rates are expected to remain high, with the federal funds rate at its highest since 2001.

     Immigration surge:

• From 2021 to 2026, net immigration is projected to be 8.7 million higher than historical levels.
• The surge is expected to increase nominal GDP by $8.9 trillion (2.4%) over the 2024-2034 period.
• The immigration surge will raise interest rates by 0.1 percentage point by 2034 and lower deficits by $0.9 trillion, with revenues increasing by $1.2 trillion and mandatory spending and interest outlays rising by $0.3 trillion.

     Of note: CBO says that one culprit for the larger deficit this year is Congress’s recent military aid bill. But overall defense spending is still falling as a share of the economy and is expected to hit a postwar low of 2.8% of GDP in 2034. Also, if spending as a share of GDP remained at the pre-pandemic average, the deficit would be roughly $890 billion this year and $13.4 trillion smaller than CBO’s 10-year projection. This would keep debt as a share of GDP at roughly 90%.

     Bottom line: Phillip L. Swagel, CBO's Director, emphasizes that these projections incorporate the impacts of the immigration surge and recent legislative changes on the federal budget and economy.

— CBO projects $1.9 trillion federal budget deficit for FY 2024. The Congressional Budget Office (CBO) estimates that the federal budget deficit for FY 2024 will reach $1.9 trillion, which is $400 billion higher than the estimate from four months ago. ($300 billion larger than last year’s deficit). The increase is attributed to President Biden's student loan forgiveness program (which CBO estimates could cost $211 billion this year above what it estimated in February), spending on Ukraine, Israel, and the Indo-Pacific region, slow recovery of bank failure costs by the FDIC, and higher Medicare spending (higher enrollment). CBO increased its Affordable Care Act (ACA/ObamaCare) spending estimate by $22 billion for this year and $244 billion over the next decade. It also raised its ACA enrollment projection by four million for this year and an average of three million over the next 10 years.

     Of note: Over the next decade, the CBO projects the deficit will total $24 trillion. Link to report.

— The interest burden of the debt is significant. According to EconoFact Chats (link):

• Interest payments on federal government debt are projected to be $892 billion in 2024, representing 3.1% of GDP. Net outlays for interest have never exceeded 3.2% of GDP since 1940.
• Interest payments, at 13% of federal spending in 2024, represent the third highest category of spending, ahead of spending on defense, Medicare and income security programs. This contrasts with the situation in 2017 when net interest payments made up 7% of government outlays.
• Projections of the interest burden of the debt have increased dramatically over the past four years. The Congressional Budget Office currently projects that interest payments on debt will be about 15% of federal spending in 2030. Four years ago, the projection for 2030 was about 9%.
• Rising levels of debt service contribute to fiscal challenges. Higher interest payments mean less government spending is available for defense, social safety net programs, research, and other important government functions like a farm bill.
  
  
  

— CBO is big player in farm bill negotiations. The CBO is the official scorekeeper of legislative proposals and in release a farm bill baseline. The ongoing farm bill debate has a $1.51 trillion baseline over ten years. While CBO on Tuesday updated its forecasts, the farm bill baseline remains the same because House Ag Chair GT Thompson (R-Pa.) got his proposal approved in his panel by the end of May.

     CBO now says USDA’s use of its Section 5 authority under the CCC would total $12 billion from fiscal year (FY) 2025 through 2034. In February, USDA estimated that it would spend $15 billion over that period. But either tally is nowhere near the $50 billion or more the House Agriculture Committee needs to fund commodity program increases.

     Link to CBO estimates of CCC spending

     Link to CBO June 2024 baseline

     Link to CBO June 2024 SNAP spending | Another link to CBP on SNAP

— Stabenow uses CBO updates to make her farm bill case. The new CBO projections “prove what we have been saying all along: the House Republican farm bill is unpaid-for, relying on magic math and wishful thinking,” Stabenow said in a statement. “In exchange for blocking USDA’s ability to provide real time assistance to farmers through the CCC to address emerging challenges, House Republicans received only a small fraction of the $50 billion hole they need to fill to pay for their bill," she said.

     Stabenow said her Rural Prosperity and Food Security Act “is meaningful and responsible. And, importantly, it does not fracture the farm and food coalition that is the foundation of every successful farm bill. I did the hard work of securing new resources outside of the farm bill through $2.3 billion invested in trade promotion and food aid and a $5 billion commitment in bipartisan offsets from my Leadership. It’s time to get real and stop the posturing and the rhetoric. It’s time to negotiate in reality. My door is open.” 

     Sen. John Boozman (R-Ark,) ranking member of the Senate Ag Committee, told us via an AgriTalk interview on Tuesday (link) that he thinks the House needs to pass its farm bill to put pressure on Stabenow and Democrats.