Tuesday, February 25, 2014

CBO: Federal Government's Net Interest Cost to Quadruple Over 10 Years

    A Congressional Budget Office report released in early February projects that net interest paid on the national debt will increase at nearly 14% per year for the next 10 years, "almost quadrupling in dollar terms" during that time.  The CBO makes the assumption that interest rates will return to more typical levels after being held down by Federal Reserve policy to near zero percent in recent years.  This observation is highlighted in a Monday blog post on the website of the CBO:
The government’s net interest costs are projected to increase rapidly, by an average of roughly 14 percent per year, almost quadrupling in dollar terms between 2014 and 2024, as interest rates return to more typical levels and federal debt continues to mount. As a share of GDP, they are projected to rise from 1.3 percent in 2014 to 3.3 percent in 2024.
    The CBO provides the following graph to illustrate the projections:

    Also notable is the continued increase in health care expenditures, which are projected to increase from 4.8% of the federal budget to 6.1% in 2024, a ten-year increase of 27%.  Social Security's share of the federal budget is projected to rise as well, while discretionary expenses, both defense and non-defense will continue to fall.  Other mandatory spending is projected to spike in 2015, but then continue to fall as a percentage of the total budget.
    The CBO also notes that, assuming "current laws generally remain the same -- total annual outlays rise by $2.5 trillion from 2014 to 2024, reaching $6.0 trillion, or 22.4 percent of GDP, by the end of that period."

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