Key Points

• PWBM projects the annual U.S. population growth rate will fall from 0.47 percent in 2026 to 0.08 percent in 2056. After natural increase turns negative in the mid-2030s, net migration is the sole positive contributor to population growth.
• Real GDP growth averages 1.8 percent per year over 2027-2036, 1.6 percent over 2037-2046, and 1.3 percent over 2047-2056. The share of the population aged 16 and older who worked or looked for work declines from 64.5 percent to 62.2 percent over the same period.
• Conventional budget projections show total mandatory outlays growing from 69.9 percent to 73.2 percent of all spending over 2026-2056. Individual income taxes increase from 47.0 to 53.7 percent of the total.

Background

The Penn Wharton Budget Model produces baseline demographic, economic, and budgetary projections that underlie its budget scoring and policy analysis. The May 2026 baseline reflects current law as of April 2026. Going forward, PWBM plans to release two baselines per year: one in May and one in November. The November version will have more complete coverage of mandatory expenditures as more detailed program-level data and modeling become available.

PWBM’s baseline projections are unique in the non-governmental U.S. federal policy space for three reasons. First, PWBM’s projections are made independently of the Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT), with some exceptions related to miscellaneous tax and mandatory spending. (PWBM is currently updating its independent mandatory spending modules, which will be released in November.¹) As such, PWBM’s projections can be compared with CBO’s projections Second, PWBM’s estimates are bottom-up (from individuals and households to aggregate) rather than top-down (aggregate statistical projections), thereby incorporating a rich set of demographic, economic, and budget relationships over the next 30 years with rapidly changing demographics. Third, PWBM’s projections are internally consistent, including a detailed accounting among population demographics, aggregate economic production, and budget-level taxes and spending.

CBO projects a leveling off of real U.S. Treasury yields outside the 10-year budget window despite rising debt levels. To support this comparison, PWBM presents estimates in a similar fashion in this document. For that reason, these estimates should not be interpreted as a likely outcome on a risk-adjusted basis. Instead, these estimates form a key input into any dynamic analyses that includes the equilibrium impact of debt and non-stationary demographics on factor prices, capital accumulation, and gross domestic product.

Demographic Projections

The U.S. population continues to grow over the projection, but the pace slows sharply and the source of that growth undergoes a fundamental shift. Two reinforcing trends drive the change: fertility remains well below replacement, and an aging population means that deaths increasingly outpace births.

PWBM projects the U.S. population will grow from 343.5 million in 2026 to 371.5 million in 2056, a gain of 28.0 million. That is less than half the 59.5 million increase recorded from 2000 to 2025, reflecting a marked deceleration that is already underway. The population growth rate falls from 0.47 percent in 2026 to just 0.08 percent by 2056, with decade averages of 352.4 million over 2027-2036, 364.1 million over 2037-2046, and 369.9 million over 2047-2056.

The composition of population growth tells a more dramatic story than the totals alone. Natural increase contributes 0.20 percentage points to growth in 2026 but approaches zero in the mid-2030s as annual deaths begin to exceed annual births. By 2056, natural increase subtracts 0.29 percentage points. Net migration, averaging 0.36 points per year across the full projection, becomes the sole positive contributor after the mid-2030s. Without sustained immigration, the U.S. population would begin to shrink outright within two decades.

The two demographic drivers behind this transition are rising life expectancy and persistently low fertility.

Life expectancy at birth recovers from pandemic lows in 2021 and resumes its long-run upward trend. PWBM projects life expectancy of 76.6 years for men and 82.1 years for women in 2026, rising to 78.4 and 84.1 years, respectively, by 2056. The female-male gap widens slightly from 5.5 to 5.7 years. Longer lives are a positive development in their own right, but they also increase the share of the population in older age groups, adding to the dependency pressures that weigh on the budget projections documented later in this brief.

Fertility reinforces the aging trend from the other direction. The total fertility rate has fallen from 2.05 children per woman in 2000 to 1.65 in 2024, and PWBM projects it will settle at 1.58 to 1.59 over the long run. That path remains well below the conventional replacement level of 2.1 children per woman, meaning each successive birth cohort is smaller than the one before it. Fewer births reduce the natural-increase contribution to population growth and are the primary reason that contribution turns negative in the mid-2030s.

Economic Projections

The demographic slowdown documented above feeds directly into the economic outlook. GDP growth depends on how many people work and how productive they are. With population aging pulling down labor force participation, the economy loses a tailwind it enjoyed for most of the postwar period.

Nominal GDP growth slows from 5.7 percent in 2026 to 3.4 percent in 2056, with decade averages falling from 4.2 percent over 2027-2036 to 3.9 percent and then 3.6 percent. The real GDP story is steeper: growth drops from 2.2 percent in 2026 to 1.1 percent by 2056, averaging 1.8, 1.6, and 1.3 percent across the three decades. The gap between nominal and real growth, which measures GDP price inflation, remains stable at 2.3 to 2.4 percentage points, indicating that the deceleration is driven almost entirely by real factors rather than by falling inflation.

The chief real factor is the shrinking share of the population that participates in the labor market. PWBM projects the annual labor force measure for ages 16 and older will fall from 64.5 percent in 2026 to 62.2 percent in 2056, a decline of 2.3 percentage points. The projected average by decade declines from 63.6 percent over 2027-2036 to 62.7 percent over 2037-2046 and 62.5 percent over 2047-2056. The decline is not primarily about changes in work behavior within age groups; it is compositional, driven by the same population aging that pushes natural increase below zero in the demographic outlook.

Despite falling participation rates, total employment still rises because the population itself continues to grow, largely through immigration. PWBM projects employment will increase from 164.1 million in 2026 to 176.6 million in 2056, a gain of 12.5 million workers. But the pace of that growth decelerates from 0.39 percent per year over 2027-2036 to 0.23 percent over 2037-2046 and just 0.12 percent over 2047-2056. Average employment by decade is 168.0 million, 172.9 million, and 176.0 million across the three periods. Slower employment growth, combined with only modest gains in labor productivity, accounts for the steady decline in real GDP growth documented above.

Interest rates settle to steady-state levels over the next several years. PWBM projects the 10-year Treasury yield will decline from 4.81 percent in 2026 to 4.50 percent by the early 2030s and remain there through 2056. The 3-month rate declines from 3.69 percent to 3.18 percent over the same horizon, leaving a steady-state term spread of 1.32 percentage points. These conventional projections hold yields constant despite rising debt levels; PWBM’s separate dynamic analysis incorporates the feedback of debt on interest rates.

Budget Projections

The demographic and economic trends documented above flow directly into PWBM’s conventional budget baseline. Slowing nominal GDP growth tempers the expansion of the tax base, while population aging increases mandatory spending. This section presents PWBM’s projections for federal revenues by source, discretionary outlays, and total mandatory outlays. PWBM will present more disaggregated program-level spending data in the November 2026 release.

Federal Revenues

Total federal revenues grow from $4,881 billion in 2026 to $20,557 billion in 2056. Individual income taxes and payroll taxes account for the large majority of that total throughout the projection, but their relative shares shift: individual income taxes rise from 47.0 percent of total revenues in 2026 to 53.7 percent in 2056, while payroll taxes fall from 34.9 percent to 32.0 percent. Corporate income taxes decline from 8.7 percent to 6.8 percent. Among the smaller sources, customs duties fall from 5.6 percent to 2.8 percent and excise taxes fall from 2.2 percent to 1.2 percent, while estate taxes and miscellaneous receipts together rise from 1.6 percent to 3.5 percent.

The growth in individual income tax revenue reflects both rising nominal incomes and the progressive rate structure, which pushes taxpayers into higher brackets as incomes grow faster than bracket thresholds are indexed. Payroll taxes grow more slowly because a larger share of total compensation falls above the taxable earnings cap over time.

Federal Outlays

Total outlays on discretionary and mandatory programs grow from $6,574 billion in 2026 to $24,024 billion in 2056. Mandatory spending is the dominant category throughout and accounts for a growing share: 69.9 percent of these outlays in 2026 and 73.2 percent in 2056. Defense discretionary outlays decline slightly from 14.4 percent to 13.6 percent, while nondefense discretionary spending falls from 15.7 percent to 13.3 percent.

Mandatory spending growth is driven by population aging and the associated expansion of Social Security and federal health programs. As the population aged 65 and older grows relative to the working-age population, the number of beneficiaries rises faster than the labor force that supports payroll-tax-financed programs. Combined discretionary spending, which is set through annual appropriations, grows more slowly; its share of total discretionary and mandatory outlays falls from 30.1 percent in 2026 to 26.8 percent in 2056.

The gap between total revenues and total discretionary and mandatory outlays widens from $1,693 billion in 2026 to $3,467 billion in 2056. This gap does not represent the total federal deficit because net interest and certain other budget components are not included, by design. Average annual gaps by decade are $1,701 billion over 2027-2036, $2,089 billion over 2037-2046, and $2,851 billion over 2047-2056.

This analysis was produced by PWBM staff.

Footnotes

1. In previous years, PWBM estimated the larger mandatory spending programs under baseline policy, but we are currently overhauling those modules to accommodate more novel policy reform options. The new modules will be made available in November. In the meantime, we are using CBO values for some mandatory programs, adjusted for differences in our demographic and economic projections. ↩