If no major policy changes are made, debt service (the amount the U.S. government must spend each year for interest on the debt), which was more than $800 per person in 2008, would roughly double in those terms by 2020 at current interest rates. But average interest rates on government debt now are extraordinarily low, because of worldwide economic conditions: CBO and others project that, as the recovery proceeds, the government’s borrowing rates will return to more historically normal levels, roughly doubling over the 10-year period. With debt nearly doubling and the government’s average borrowing rate rising, spending for debt service in 2020 could approach $1,700 per person. And beyond 2020, the projected growth of the debt accelerates. Of course, uncertainties surround any budget forecast, especially over a long horizon; see Box 1-4. Each update changes the picture slightly, without changing the basic conclusion; for example, CBO’s August 2009 update of its 10-year baseline increased the projection of cumulative deficits over 10 years by about $1.5 trillion relative to its March estimate (Congressional Budget Office, 2009a, 2009g).1 However, this update does not change the committee’s conclusion that if action is not taken soon the necessary and nearly certain result will be a larger discrepancy between revenues and spending and heavier burden of debt that eventually will require very sharp cuts in spending or very sharp increases in taxes. These, in turn, could have disruptive effects on many people and inflict severe damage on the economy or raise the risk of a severe financial crisis.

BOX 1-4

Uncertainties

The fiscal outlook could be worse than projected if:

  • the economic recovery is weaker or slower than forecast, automatically increasing spending and depressing revenues;

  • health spending growth is faster than projected;

  • new or expanded spending programs are not fully offset by new revenues or cuts in other programs;

  • annually appropriated spending (that is, other than for entitlements) grows with GDP rather than only with inflation, as assumed for the next 10 years;

  • new crises—pandemics, wars, major natural disasters; major bankruptcies—demand emergency spending; or

  • interest rates rise more than projected.

The fiscal outlook could be better than projected if economic growth is stronger than forecast, if health spending growth slows, or if interest rates remain lower than predicted.



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