GOP’s debt deal, migrant labor boom tamed government spending — for now

Uncle Sam’s budget looks a bit better this year after Congress ordered spending to be constrained and the economy hummed along, powered in large part by the massive surge of migrants, the Congressional Budget Office said Wednesday.

The federal government is now projected to run a $1.6 trillion deficit in fiscal year 2024, which is a tick down from last year’s $1.7 trillion mark.

But the good news won’t last, CBO said. The government will notch a $1.8 trillion deficit next year, and then after a few years of wobbles, it will start running annual $2 trillion deficits in the new decade.

Most of the increase in deficits over that time will come from interest payments on the national debt, which will continue to rise as the government’s sea of red ink expands. The big social safety net programs drive the rest of the growth.

“Net interest costs are a major contributor to the deficit, and their growth is equal to about three-quarters of the increase in the deficit from 2024 to 2034,” said Phillip L. Swagel, CBO’s director.

By the numbers, the government will collect $4.9 trillion in revenue, up from $4.4 trillion last year. But it will spend $6.5 trillion, up from $6.1 trillion. The result is the $1.6 trillion in arrears.

CBO said last year’s Fiscal Responsibility Act, the debt deal then-Speaker Kevin McCarthy hashed out with President Biden, helped limit spending, along with the ongoing stopgap spending bills that are keeping the government running.

“Today’s CBO baseline reveals that when Republicans stand firm on fiscal responsibility and force Congress to reduce spending, America’s fiscal outlook improves,” said Rep. Jodey Arrington, Texas Republican and chairman of the House Budget Committee.

At the same time, the torrid pace of new immigration, which CBO says began in 2022, has poured new workers into the labor force, boosting the economy’s overall productivity. The analysts said they figure the migration surge will last at least through 2026.

Rep. Brendan Boyle, Pennsylvania Democrat, said the numbers show a surprisingly strong economy for which Mr. Biden should get credit.

“None of that was achieved by accident — it happened because Democrats took swift action to rescue our economy, invest in working families, rebuild our infrastructure, and bring manufacturing back to America,” Mr. Boyle said.

The CBO did find that Democrats’ 2022 climate-budget law will cost more than projected, with energy-related tax credits coming in $51 billion higher than projected two years ago.

CBO said the government will end this fiscal year, in September, with nearly $35 trillion in total debt. It will cross $40 trillion in 2027, and will top a staggering $50 trillion in 2033.

Debt held by the public — which doesn’t include internal government IOUs — will be nearly $46 trillion, or 114% of gross domestic product. That would be an all-time record.

In 2020, the last year under the previous administration, interest payments totaled $345 billion. This year they will cost $870 billion, and will top $1 trillion — more than half the deficit — in two years.

The estimates are based on current law and don’t account for future actions by Congress, such as approving the massive Ukraine and Israel spending package that is currently pending.

For future years, it also assumes the expiration of some Trump-era tax cuts, as scheduled under the law.

The CBO said the actual projection for this year’s deficit is $1.5 trillion, but that’s artificially low because Oct. 1, the start of the fiscal year, fell on a weekend and some payments were shifted out of the year. Adjusting for those payments leads to the $1.6 trillion figure Mr. Swagel gave.

The numbers came just days after Federal Reserve Chairman Jerome H. Powell said the government “is on an unsustainable fiscal path.”

He said in an interview with “60 Minutes” that the pandemic spending was understandable, as Uncle Sam opened the spigot to try to ward off an economic catastrophe. But he said that impetus is over.

“It’s probably time, or past time, to get back to an adult conversation among elected officials about getting the federal government back on a sustainable fiscal path,” he said.

There is new interest in a high-profile fiscal commission to recommend a path forward. The idea is that Congress has stumbled each time it’s reached for reforms in the last several decades, and it needs a prod from the outside.

The House Budget Committee passed legislation last month to create a 16-member bipartisan panel. The vote was 22-11, with some Democrats joining the GOP in backing the idea.

Opponents say the commission is a stalking horse for those who want to constrain Social Security or Medicare spending. That’s an indication of just how much those programs absorb of government spending.