WASHINGTON (MNI) - While the Congressional Budget Office's most recent update of its economic and budget baseline does not offer any startling new insights into U.S. fiscal policy, it paints into even bolder relief one profound fact: the enormous impact that growing debt service costs will have on U.S. fiscal policy in the next decade - and beyond.
In its report, the CBO shows annual net interest costs rising from $227 billion in fiscal year 2014 to $400 billion in FY2017 to $694 billion in FY2021 and then to $876 billion in FY2024.
According to CBO, for the FY2015 to FY2019 period, the U.S. will pay $2.046 trillion in interest and for the FY2015 to FY2024 period, debt service costs will reach $5.825 trillion.
For the FY2015 to FY2019 period, the CBO sees cumulative deficits of $2.930 trillion and for the FY2015 to FY2024 period, it sees cumulative deficits of $7.618 trillion.
"Debt service costs have become the 'other' entitlement - and not just the 'other' entitlement but one of the largest entitlements," says Bob Bixby, executive director of the Concord Coalition.
"The size of our debt service payments is going to get very large, very quickly. In this ten year period, debt service costs are going to be larger than the defense budget and larger than any other domestic agency. This is really stunning, when you think about it," Bixby said.
The CBO report says the soaring levels of debt service costs in the future will be driven by growing debt and rising interest rates.
The CBO says that as the economy strengthens interest rates will rise considerably. Between calendar years 2014 and 2024, the CBO expects the average interest rate on three month Treasury bills to to rise from 0.2 percent to 3.7 percent and the average rate on 10 year Treasury notes to rise from 3.1 percent to 5.0 percent.
"At the same time, debt held by the public is projected to rise to increase significantly under current law," the CBO says, adding public debt is projected to increase from $12.7 trillion at the end of 2014 to $20.9 trillion at the end of 2024.
As a percentage of gross domestic product, public debt will stay between 72 percent and 74 percent of GDP through 2020, but then begin to rise, reaching 78 percent of GDP at the end of 2024.
In its report, the CBO said it expects the FY2014 budget deficit to fall to $492 billion, down sharply from the $680 billion deficit in FY2013.
The CBO sees deficits of $469 billion in FY2015, $536 billion in FY2016, $576 billion in FY2017, $627 billion in FY2018 and $722 billion in FY2019.
Looking further ahead, the CBO sees deficits of $804 billion in FY2020, $878 billion in FY2021, $998 billion in FY2022, $1.005 trillion in FY2023, and $1.003 trillion in FY2024.