The impact of undocumented migration on the u. S. Budget and economy. This is about 40 minutes. Thank you for joining us here. I will talk first about the federal budget and then discuss the economy. And the projections we released today the deficit grows from 1. 6 trillion in 2024 to 2. 6 trillion in 2034. Measured in relation to the economic output, deficits are about 50 larger than their historical average over the past 50 years. Net interest costs are a major contributor to the deficit. Their growth is equal to about three orders of the increase in the deficit from 2024 to 2034. Initially, net interest costs are similar to the amount of Discretionary Spending both for defense and for nondefense activities. By the end of the time at 1. 6 trillion interest outlays are roughly 1 1 2 times larger than either defense or nondefense spending. Also boosting deficits are two underlying trends. The aging of the population and growth of federal Health Spending per beneficiary. Those trends put upward pressure on mandatory spending. Measured in relation to economic output, federal debt held by the public rises from 99 in 2024 to 116 in 2034, surpassing the historical peak. The debt ratio continues to rise, reaching 172 by 2054. From 2024 to 2033, the deficit is about 7 smaller than we projected last year primarily as a result of the fiscal responsibility act of 2023 and the subsequent continuing resolutions. Together, those laws reduce the growth of Discretionary Spending including the effects on debt service, legislative changes to reduce deficits by 2. 6 trillion over the next 10 years. In our projections, the deficit is also smaller than it was last year because economic output is greater. Partly as a result of more people working. The labor force in 2033 is larger by 5. 2 Million People, mostly because of higher net migration. More workers mean more output and that in turn leads to additional tax revenue. As a result of those changes in the labor force, we estimate that from 2023 to 2034, gdp will be greater by about 7 trillion and revenue will be greater by about 1 trillion than they would have been otherwise. We are continuing to assess the implications of migration for revenues and spending. In particular, we are still analyzing immigration legislation that has considered. Two key factors partially offset and that reduction relative to last years projections. The first is the net interest cost rise as a result of higher Interest Rates. The second, the cost of Energy Related tax provisions are much higher than the staff at the joint committee on taxation originally projected. Those reflect new emission standards, market developments and actions taken by the administration to implement tax provisions. Turning to the Economic Projections, the u. S. Economy grew faster in 2023 that it did in 2022 even as inflation slowed. Economic growth is projected to slow in 2024 amidst increased unemployment and lower inflation. We expect the Federal Reserve to respond by reducing Interest Rates starting in the middle of the calendar year. In our projections, Economic Growth rebounds in 2025 and moderates in later years. Since february 2023, when we publish the last fall Economic Forecast, the agency has lowered its projections of common growth and inflation as measured by the pce price index for 2024. We also expect Interest Rates to be higher from 2024 to 2027 than projected last year. After 2027 the current and previous Economic Forecast for Economic Growth are generally similar to previous projections. Let me stop here. I am happy to take distance and i would be grateful if you would just say your name and news organization. So the deficits would be down about 1. 4 trillion over 10 years . That is mainly because of fra . That is the biggest contributor in reducing deficits and is offset by a range of other things. The technicals like the tax provisions for the 2022 reconciliation legislation. That leads to a higher deficit and range of changes in each direction. There is a full discussion in chapter 3 of the report. It starts with figure 31 on page 76 and goes through all of the gory details. I noticed that 2017 was mentioned about 20 times. Is that connected to references that if it expires that deficits go down which is the opposite . You can see those affect and the revenue figures from 2025 to 2026 the revenue share of gdp goes up by a little less than 1 of gdp. That is attributable mainly to the expiration of those in the 2017 tax act. Am wondering if you can take us through the Clean Energy Tax adjustments. The epa new estimates of gas tax revenue from the epa changes. Can you tell me about the inflation reduction a part of this is when the bill is passed . I am flipping pages. You will see on page 86 the report is box 31. Theres almost 2 full pages that go through some of the details. The challenge here is that it is a new baseline so it is compared to the baseline of which the 2022 act was estimated against originally. That was actually two baselines ago just because the baseline against which that was estimated was 22. So that, that is a whole set of changes. It makes it a bit difficult to have an apples to apples comparison, but i can discuss some of the key points. The biggest single one is the epa rule. This has so far been proposed that would take effect with the 2027 model year. In the baseline, that is in it and have strength. In a sense, that is the normal procedure for a role that is being proposed but not yet finalized. That would do two mean things for the budget. The one Main Driving Force which shift both producers and consumers were heavily toward electric vehicles. That would affect the cost of the tax credits for electric vehicles and that would affect the excess tax for fuel. That is the biggest single piece. What is the figure for that. That is 150 something million. On the ev side theres a lot of things going on. I will keep going and then we will circle back to the figures if john wants to jump in as well. On the ev side, the other thing that happened is the treasury implementation the ev tax credit was different than what they had expected and was embodied in the original estimate. That has to do with some of the leasing provisions and limitations for the tax credit that applied in the legislation for the individual buying the vehicle. Befriended in a way that if somebody leased a vehicle and said this is good instead those limitations do not apply. So this has just been market developments. This is the Battery Industry and especially the wind and Solar Industry have expanded by more than was embodied in the original tax credit. There is also that expansion an additional cost of the provisions. I know you had asked about some of the numbers as well. I just want to backup . I dont know if it is possible to come back off the epa part from the Inflation Reduction Act by. You want to go through some of that to the extent you can . The costs are related to the clean vehicles is 200. 4 billion over the time about two thirds of that is revenue side. That revenue side includes those productions and excise taxes but also the changes to individual corporate taxes. What we do is we consider all of the factors at once. So there is difficulty disentangling what portion of it to promote out tvs at the speed of adoption more quickly than we realized and those purchases versus what would happen just because the market is moving. So we dont identify the portion through the ranks due to how technology is moving in this industry and the implementation guides given in treasury. As a whole, i think it is appropriate to think of a single biggest factor that is pushing this forward. That was previously the issuance of this regulation. On the other side, that is a separate piece that gets you to that 420 billion. Correct. We are sort of thinking about how many evs will be sold each year and because they are sold that is the tax on both the claiming of the credits that were expanded and the reconciliation act as well as the efficiency for the excise taxes. That is difficult to disentangle how much is the epa reg versus all that is other changes to the economy since we last investigated these provisions. Okay. Some of this is on the revenue side and some is an additional complication. Just two followups on that. I know you cant really compare baseline but that is roughly the clean Energy Credits are double from the original estimate . I think that is a fair characterization. That is one way to think about this is what a tax expenditure as to what the joint committee might put out. Those tax expenditures are probably twice as large now as they were at the time when the bill went through. And you have i mentioned the proposed role. Of the administration between now and then finalizes that rule there will be another adjustment where they will say in a year the next administration were to come in and undo or on proposed that rule . The way that would show up hopefully everybody got that. If you didnt we can go through it again. That can show up in different ways. For example, if there was legislation tomorrow to undo that rule, the savings would be the half. It is only halfway to the baseline. Only half of the cost are the baseline. So mixing it would have savings equal to half the cost. If it is finalized, and then there is legislation to repeal it, that would have the full savings. That is one last thing. Are there other implementation regulations that are significant for that convention . A bunch of them are in the proposed phase. I cant think of any. Are there others . I think for the most part the treasury rex are the nation are implementing the law. They asked themselves do not have an impact on the baseline. There are certainly market reactions to those rags regs but those are different to the one described in this. Thank you for doing this. Can you talk a little bit about the net interest costs and the driving force behind that . Im not sure i quite understand. Are you, sort of we have this bump up in Interest Rates and that had an impact and now Interest Rates have come back down a bit, right . It does not look like after we push through that sort of projecting in the long run Interest Rates will be different so that, i guess what im saying is the term premium had gone up. You dont seem to say that that episode will lead us to conclude that the future of the term premium will be more elevated than we might have thought before this episode. Does that make sense . I got it. I think everyone else got it. I will speak to the question and if anything is unclear we can come back to it. So, we do have higher Interest Rates in the forecast embodied in these projections than we did in the previous budget projections. As you said, that has a big impact on net interest. The increase in net interest outlays you can think of that as two thirds resulting from the higher rates and one third resulting from the larger amount of debt. There is a lengthy footnote in the report that goes through that calculation of the two thirds, one third. If you look at the economic chapter, this is chapter 2, this is hopefully very handy for everyone by the numbers document. You can see that we do not get paid by the click for this but i hope everyone, including our viewers on cspan, will download it and look at it. It is a very handy document. You can see that we do have higher rates. The profile is at the beginning of this year we had the 10 year at 4 point 2 and then it decreased to 4. 1. That is not exactly perfect but it seems pretty good for the interestrate right now. We have essentially two things going on. Part of it is the modest increase in the term premium over the nearterm horizon. Even as the fed in our projections has paused with its interestrate hikes at the short end of the curve, and then starts to lower the funds rate around the middle of the year. We have the first rate cut in our forecast was in may and we have a total of three of them this year. So even as shortterm rates are coming down, we have longer term rates going up honestly still over 24 and 25. That is partly the term premium and also partly just more debt driving rates up. As inflation continues to moderate back down to the fed target, we see the longterm rate coming down. You are right. Just to go back to the question you asked, you are right that the longterm rate is still pretty moderate. So you have not really changed that, basically. It had an effect obviously. Thank you. I was just intrigued by the astounding figures on immigration and how much that has contributed to your projections. To what degree is this pentup supply if you like . The post pandemic jump that would continue into the future years projections. And also, you touched on the immigration bill going through the senate and that you would be researching that but just ahead of any implication of any finance on that level, what would be a welldesigned immigration bill for what kind of fiscal perspective . Very good. Let me take those intern. In chapter 2 of the report, there is a long box on the impact of immigration on the economy and from the budget from there to the budget. As claire said, its a salient impact in the Economic Projections and then from there to the budget projections. As i said in the statement, the labor force is larger by 5. 2 Million People by the end of the 10 year window. Lets see, im sorry. It is on page 50 and 51. It is box 21. The one that i put on the screen is on page 51 showing the change in the labor force from what we had last year and reflecting mainly on net immigration. So lets take that a couple things. One is the effect on the economy and the budget. That Economic Impact is the largest impact of the increased labor force. More people, more workers , larger economy and then from there it has budgetary effects. Of course, immigration has many effects. Social effect scott theres security effects and many things like that. Of course, we are focused on the economic and budgetary effects. Thats what i will speak to but i am not saying those are the only affect. In some sense, some of the biggest fiscal effects might be on the southern level of government. Of course, the state and local government around the country would have fiscal effects and then there would be effects on Discretionary Spending since much of that activity in federal government that responds to the immigration search is Discretionary Spending so we dont project that out. On the revenue side the calculation we did is that those additional workers would raise the amount of gdp by 7 trillion as i said. That would correspond to roughly 1 trillion in additional revenue. I am sorry. I think the next piece of the question was, in some sense, the projection of the search going through 2026. We had it starting in 22 for the data shows. It is very difficult to know sitting here today how long this will last. How long this immigration surge will last. We do not know. It is a key source of uncertainty in the projections. We have the surge going through 2026 and tapering back down and going roughly to the pre tran10 rate of population growth. It is something we are just going to follow and see what happens over the next several years to the surge and immigration. Of course, if there were a change of legislation we would look to model that as well. I think i answered the question if i remember. Apologies if i did not answer everything. We were talking about, clearly it is a big thing at the moment with immigration legislation. What would a welldesigned immigration bill look like from a fiscal perspective . It is a challenging question for cbo because we steer clear of the normative and a answer to the congress. This is really from the founding of the agency. We are in a 49th year. We provide the budget analysis but do not tell them if it is welldesigned or not well designed. I will tell you Something Else we have done. I apologize with the preface but some of the analysis we have done and i think that will answer the question. First, you see embodied in the work is the number of people. We have also looked at the composition of recent immigrants. It is very difficult to know with precision who are the people coming across the border now. We do have information on who were the reason immigrants and what are their ages and skills so we have used that information to model the economic and budgetary impacts. That is in part how we came to the conclusion that there would be this change in the labor force by seeing the disproportionate share of immigrants that are of working age from 16 up to age 54. Prime h. So that is one. Then we have looked at the education in terms of composition of the workers. It is you know, we have taken that and what kind of skills to they bring and what does it mean for innovation for entrepreneurship and the founding of new businesses and what does it mean for their initial wages and what does it mean for productivity in the u. S. You will see in the boxes there is a discussion that initially immigrants would go into sectors of the economy with relatively low productivity. Over time as their skills arise, they would shift and summon that effect in lowering average productivity and then we get the offset. That in turn would translate into wages. That is question, if the congress has immigration legislation, whether what is being discussed in the senate or Something Else, that changes the composition of immigrants, that cbo could provide that economic and budgetary analysis. You do take account of the revenue effect . Growth is faster , but on Discretionary Spending, state and local is different. Is that right . I can go to that again. State and local, we know what is there. That is outside of our purview. The Discretionary Spending, again, it is there and the search in immigration has an effect on Discretionary Spending. For future years, the cbo projects Discretionary Spending in a mechanical way. A statute that Discretionary Spending in our projections goes up with inflation. It could be that, if the search continues, policymakers may devote additional discretionary resources but we would not have that in our projections. On the mandatory side, we would analyze that as well. Many of the immigrants coming in received Work Authorization, someone who comes in with parole would receive Work Authorization generally around six months or so after they come in with parole. Then they could fit into the Social Security system and contribute. Of course, there would be benefits, eventually they would retire and receive benefits. The benefits side would be outside of the window, generally outside of the window for someone not close to retirement. But we would have the revenue up front. That would be in our projections. Most of the people get work permits. They get work permits after some time . It is a mixture. Someone who comes in with parole becomes eligible for Work Authorization within year. Generally at the sixmonth mark. In the labor force, et cetera, someone who comes in, not through parole, but through some other channel, it depends on the specifics. That is a discussion in here. Also, in the demographic report that we released in january there is a discussion of immigration. We would track the different channels. For example, this is the term of art the Border Patrol uses, got away. Someone who comes in and not in contact with that u. S. Authorities, they generally would not receive Work Authorization unless or until they make a claim in the interior which gets adjudicated. Then there would be a differential effect on mandatory spending. We would see we look at people like that and understand that many of them would work without authorization. We would have to look at the different revenue effect. Again, there is a revenue effect on state and local revenues, state and local spending, for schools at the local level and sales taxes, but the federal impact is lower. Is there anyway to change the percentage of illegals that are in the surge . What percentage of those people are illegals . We have a breakdown in the chapter that goes to the different i am sorry, this is the demographic report from january which has a breakdown of the different categories. In our projections. The demographic report is the input to this. I am sorry i did not bring it with me but that has the breakdown between the different categories. Caitlin with politico. You do not comment on legislative proposals that republicans have taken these figures and saying this is why we want a Fiscal Commission and this is why we are pushing for this in the upcoming fiscal 2024 government funding package. Can you comment on the trajectory of where you see the debt and deficit going . Smaller than they were compared to projections last year. If you can comment on that and the efficacy of creating Something Like a Fiscal Commission as opposed to taking other action . Yes, of course, i would be glad. It seems to me that the first message, the projections is the familiar one that the fiscal trajectory is daunting. You can see in the deficit chart that is behind me, if i flipped to the next one with the debt, the debt ratio is rising and it does not get better after the end of the 30 year window. That is familiar. On the other hand, it is a little bit less bad than it was in the projections last year and that is the effect of the fiscal responsibility act of 2023 and the subsequent continuing resolutions that implemented that. It is not enough to solve the problem, to remove the fiscal danger, but it is enough to be meaningful and to show up. That is the way i think of the situation now in terms of the Fiscal Commission, cbo would support that and we work through the budget committees, in the house and the senate, and the House Budget Committee is considering that legislation. Wherever the Congress Goes we would support that. The agency has done that in the past. We will have to get that for you , the picture of the binder of cbo analysis from the past Fiscal Commissions. [ laughter ] we will find that picture and get it for you to illustrate. That is what we would do, never tell the congress to do this or do that. It could be that our 2022 deficit, options to reduce the deficit report, it may be helpful for congress as the policymakers consider options. The last thing, and i will come back to rich, we do that deficit option as a report every two years, we would do another one at the end of this year which would be helpful to policymakers. You bumped up the estimates from a year ago, i cant tell how much you think is left in that bucket. Claims that were filed before and now some post january 31st. How much is out there . I will say a word and lets go back to john. It is a difficult issue because we dont have the realtime information on the backlog of claims and if any claims are withdrawn during the time in which the irs stopped the processing. That is the challenge. I dont know if we have numbers. We increased our projections of the deficit as we participate under current law there would be additional claims. That projection was created in november and information we had in november. At that point, we knew there was a moratorium that we had no idea what was sitting on those pieces of paper at irs. Or what future claims would be. But i think we had the sense, from what i. R. A. s had released in the fall irs heavy snowfall, Going Forward there would be much stricter claims scrutiny on the claims Going Forward, as a result, a lot of claims in the pipeline, a smaller share of them would be paid that what had been processed prior to the moratorium. Work reflected in the recent joint committee estimates has more recent information that was available to cbo when we did our baseline that probably reflects it is fair to say, there is more things in the pipeline then they knew in november. Some uncertainty as to exactly how successful irs will be in evaluating which claims are legitimate and which ones are not. Great. Other . Good thank you very much. We are here to be helpful. If you have further questions in the future, please let us know and we will come back to you. I owe you a photo. [ laughter ] that would be great. Nice to see everyone in person. House lawmakers examine a proposed rule to regulate payment apps and digital wallets , watch the entire House Financial Services subcommittee hearing tonight at 9 00 eastern on cspan, our free video app, or online at cspan. Org. Cspan is a unfiltered view of government, we are funded by these Television Companies and more including midco. Midco supports cspan as a Public Service with these other Television Providers giving you a front row seat to democracy. For voices 2024, we are asking voters across the country what issue is most important to you in the selection and why . The most important issue is immigration. Economics and the deficit. Homelessness is an issue that needs to be addressed. Share your voice by going to our website, cspan. Org , select the record your voice tab and record a 30 second video telling your issue and why. Voices 2024, be a part of the conversation. U. S. Treasury secretary jenny yellin said the Biden Administration has driven and is work recovery and she also addressed the need for a Regulatory Framework of stable