The United States has seen a significant surge in immigration in recent years, with a notable increase in the number of individuals classified by the Congressional Budget Office (CBO) as “other foreign nationals.” This category includes people who have received permission to enter or remain in the country and those who have not. Based on pre-2020 trends, the CBO would have expected net immigration in this category to average around 200,000 people per year. However, projections show that net immigration will exceed this rate by a total of 8.7 million people from 2021 to 2026.
In its recent report, the CBO examines how this surge in immigration will affect the federal budget and the economy for the 2024–2034 period. The report focuses on the incremental impact of the surge, detailing its effects on federal revenues, mandatory spending, and interest on the debt. It also provides a broad assessment of potential impacts on federal discretionary funding but does not include estimates of the surge’s effects on state and local budgets.
Budgetary Effects
The CBO’s analysis indicates that the increase in immigration will boost federal revenues, mandatory spending, and interest on the debt, ultimately lowering deficits by $0.9 trillion over the 2024–2034 period. The surge in immigration is expected to add $1.2 trillion in federal revenues during this time. Annual revenue increases will grow over time, reaching $167 billion (or 2.2 percent of total revenues) by 2034. This growth is primarily driven by individual income taxes and payroll taxes paid by immigrants, along with the broader economic activity they generate.
The surge will also add $0.3 trillion to outlays for federal mandatory programs and net interest spending on the debt over the same period. Annual outlays for certain mandatory programs will increase as more immigrants and their U.S.-born children receive benefits. By 2034, these benefits are projected to add $23 billion (or 0.4 percent) to total mandatory spending. Additionally, the broader economic effects of the surge will boost annual spending, particularly for interest on the government’s debt, due to higher interest rates. In total, projected outlays in 2034 will be $50 billion higher because of the surge.
Economic Effects
The CBO projects that the immigration surge will significantly impact the U.S. economy. It is expected to boost total nominal gross domestic product (GDP) by $1.3 trillion (or 3.2 percent) in 2034 and by $8.9 trillion over the 2024–2034 period. The total amount of wages paid annually will also increase by about 3 percent by 2034. These additional wages will contribute to the boost in revenues because they are subject to payroll and income taxes.
The surge will also affect the labor market. Initially, wages for workers in the surge population will be lower than those of other U.S. workers with similar education levels but will converge over time. From 2021 to 2026, the average wage growth of non-surge workers will be slightly less than it would have been without the surge. However, in later years, average wage growth will increase slightly due to higher innovation-related productivity and increased demand for more-educated workers.
Discretionary Spending and State and Local Budgets
While the CBO’s estimates do not include discretionary spending, the immigration surge is expected to put pressure on budgets for many discretionary programs. These include programs administered by the Department of Homeland Security and the Office of Refugee Resettlement, as well as those providing funding for education, income support, and infrastructure. The surge will also affect the budgets of states and localities, with varying impacts among jurisdictions. Generally, research indicates that increases in immigration raise state and local governments’ costs more than their revenues.
The CBO’s report provides a comprehensive analysis of how the recent surge in immigration will impact the federal budget and the U.S. economy over the next decade. By boosting federal revenues and economic activity, the surge offers significant benefits, but it also increases mandatory spending and interest on the debt. The full study delves deeper into these findings and provides critical insights for policymakers and stakeholders.
For a more detailed understanding of the immigration surge’s impact click here to read the full study from the Congressional Budget Office.