Budget Office report credits immigration and spending deals with improved outlook despite huge debt

The likeness of George Washington is seen on a U.S. one dollar bill, March 13, 2023, in Marple Township, Pa. The nonpartisan Congressional Budget Office says it expects the federal government will be awash in debt over the next 30 years. (AP Photo/Matt Slocum, File)

WASHINGTON (AP) — The nonpartisan Congressional Budget Office said Wednesday that it expects the federal government to be awash in debt over the next 30 years, but the outlook has improved over the past year due to increased immigration and agreements to reduce spending.

The CBO's latest long-term budget and economic outlook report — for a timeframe that spans 2024 to 2054 — projects publicly held debt to reach 166% of gross domestic product, or GDP, in 2054. That's down from the agency's June 2023 long-term budget projection, which said publicly held debt would be equal to a record 181% of American economic activity by 2053.

The CBO attributes the expected increase in economic growth to “stronger growth of the potential labor force over the next 10 years, largely driven by increased net immigration, and faster capital accumulation over the next 30 years."

In the nearer term, by 2029, public debt is expected to reach 107% of GDP, surpassing the historical peak it reached after World War II, according to the report released Wednesday.

The CBO report outlines the necessity for an immigrant workforce to help the nation's economy grow — otherwise the nation's population is expected to shrink into 2040 without immigration.

A decreasing population can have profound negative effects on the economy, including stagnating living standards and difficulties paying down debts.

Another factor contributing to smaller projected deficits is a 2023 agreement between Republicans and Democratic President Joe Biden's White House to suspend the statutory debt limit until 2025 in exchange for restrictions on spending for the next two years. Raising the nation’s debt limit, currently at $31.4 trillion, ensures that the government can borrow to pay debts already incurred.

The CBO issues projections that are generally more pessimistic than those of other forecasters such as the Federal Reserve and writes that its projections are subject to a high degree of uncertainty.