Low Fertility and Fiscal Sustainability: The Effects of Past and Future Fertility Rates on the US Federal Budget Outlook
Low fertility and population aging have shaped the US federal government’s spending and revenue patterns, contributing significantly to the large and growing federal debt, which the CBO projects will grow from 98 percent of GDP in 2024 to over 150 percent by 2055. In Low Fertility and Fiscal Sustainability: The Effects of Past and Future Fertility Rates on the US Federal Budget Outlook, Lisa Dettling and Luke Pardue examine the role of these trends in shaping America’s current fiscal position and the potential for higher fertility to meaningfully relieve fiscal pressures in the coming decades.
The authors first show that the dramatic rise and fall in fertility during and after the Baby Boom has played a central role in today’s fiscal strain. As the large Baby Boom cohort aged into retirement, spending on old-age entitlement programs, primarily Social Security and Medicare, rose sharply. From the mid 1960s to 2025, old age entitlement outlays rose from roughly 2.5 percent of GDP to 9 percent. With proportionately smaller working-age cohorts supporting a growing elderly population, the imbalance between tax revenues and age-related spending placed sustained upward pressure on deficits and debt. Improvements in life expectancy have also been a primary driver of increased fiscal strain on the system from old-age entitlement spending and are expected to continue rising in the coming decades. Overall, the authors estimate that if old-age entitlement spending had remained at its 2000 level as a share of GDP, the primary deficit in 2023 would have been about 0.8 percent of GDP rather than 3.3 percent of GDP.
Dettling and Pardue then evaluate how changes in near-term fertility trends could potentially affect the federal budget in the coming decades. Under both a baseline scenario of continued low fertility and one in which the US returns to a replacement-level total fertility rate in 2026, they find that deficits and debt are projected to remain on an unsustainable path through 2055 for the simple reason that a child born today will not join the workforce and pay taxes for about 20 years. Additionally, increased outlays due to spending on children or the cost of pronatalist policies would act to worsen the fiscal outlook in the short run.
Only over the very long term would higher fertility modestly improve the budget picture, as larger cohorts eventually expand the tax base and stabilize old-age dependency ratios. However, given the current unsustainable trajectory of the US federal debt, the authors conclude that it appears that changes in tax or spending policy would need to occur before the fiscal benefits of higher fertility rates could be realized.