Social Security spending on the aging population is one of the main reasons for the increase.

Social Security spending on the aging population is one of the main reasons for the increase. Dariush M/

Federal Deficit Is Set to Rise Sharply, CBO Warns

Growing shortfalls will limit lawmakers' flexibility to handle fiscal challenges.

Federal budget shortfalls are projected to rise substantially through the next decade, more than doubling to $960 billion by 2024, forcing higher federal spending on interest payments and limiting lawmakers'  flexibility to deal with fiscal challenges, congressional auditors warned Wednesday.

"Such high and rising debt would have serious negative consequences for both the economy and the federal budget," warns the new report from the Congressional Budget Office, providing an update on the nation's economic outlook.

The main causes? A rise in Social Security spending for an aging population, by almost 80 percent through 2024; expansion of federal subsidies for health insurance, by almost 85 percent; and the growing interest payments on federal debt.

These grim projections come despite what the report says is a federal deficit that, for now, is still declining. But that will soon change.

The budget deficit at the end of fiscal 2014 (which comes on Sept. 30) is estimated to be $506 billion, roughly $170 billion lower than the 2013 shortfall.

CBO does predict that economic growth will pick up in the next few years and that increased hiring will bring the unemployment rate down.

And relative to the size of the economy, this year's deficit—at 2.9 percent of the gross domestic product—will be slightly below the average of the past 40 years; this is the fifth consecutive year in which the deficit has declined as a percentage of the gross domestic product since peaking at 9.8 percent in 2009.

At the same time, however, the debt held by the public will increase for the seventh year in a row, reaching 74 percent of GDP—the highest ratio since 1950. And according to CBO, federal debt under existing spending policies will rise to 77 percent of GDP by 2024, roughly twice the 39 percent average of the past four decades.

Along with causing federal spending on interest rates to rise, the report says "the large amount of debt might restrict policy makers' ability to use tax and spending policies to respond to unexpected challenges, such as economic downturns or financial crises."

"Finally, continued growth in the debt might lead investors to doubt the government's willingness or ability to pay its obligations, which would require the government to pay much higher interest rates on its borrowing," the report warns.

(Image via Dariush M/