Primary Deficit

Comments on Washington Use

By Alan R. Davis

For years I’ve wanted to go to the Davis Mts. in west Texas.  This year an opportunity has come up.  Since it’s probably going to be the only time I’ll go, I’d love to get a new camera and set of lenses for the trip. But these are pretty expensive items and don’t quite fit into our family budget.  But after reviewing the Congressional Budget Office’s 2014 baseline projections I’ve come up with a strategy to try on my wife. After all, it seems to work in Washington.

When I talk to my wife I’m going to talk about our “primary budget”.  I’ll leave out our mortgage payment.  That way I can convince her that we actually have a large budget surplus and can afford the camera equipment after all.  However I fear there’s one small problem.  I don’t think she’s dumb enough to buy that argument.

So why do we see “Primary Deficit” in the Congressional Budget Office and White House Office of Management and Budget documents?  “Primary Deficit” is defined as the difference between Receipts and Outlays minus Net Interest.  The first time I found “Primary Deficit” shown on the WH OMB’s table of Proposed Budget by Category was in the 2012 Budget documents.  But now it appears to be a standard feature of Budgets and Mid-Session Reviews and CBO Baseline projections.

Creating a new ratio that leaves out a major component of the budget is certainly a creative way of solving budget problems.  But does it really do anything solve the problem?  Of course not!  It’s actually harmful since it allows some individuals to claim we're making progress when we’re actually falling further behind.

One of the major problems that the Nation faces in regards to its budget is the fact that Gross Debt has grown so fast and so large.  Once interest rates return to “normal”, Net Interest Outlays will explode.  A simple example of that can be seen by multiplying 3% times $18 trillion.  3% represents the approximate amount that current interest rates fall below “normal” levels.  $18 trillion is the amount of debt the Nation will have at the end of its fiscal year 2014.  The result of that math is $540 billion.  That’s the amount of Interest Outlays that’s already built into the Nation’s future budgets based strictly on the fact that someday interest rates will return to normal.  Imagine if we get higher interest rates like we did in the 1980’s!

So who came up with the idea of creating a new ratio excluding Net Interest Outlays?  I don’t know, but I do know that I’ve heard individuals who would like us to believe that our debt levels aren’t a problem talk about “Primary Deficit”.  I wish those individuals had to talk to my wife about it.  I can already hear her saying “How dumb do you think I am?”

The CBO’s Table 1.1 (page 9) shows both the 10 year projected Deficit ($7.9 trillion) and Primary Deficit ($2.1 trillion).  But what value is it to know that the deficit without Net Interest Outlays is $5.8 trillion less than the real Deficit?  It only gives someone a talking point that sounds good while ignoring the reality that our Budget is spinning out of control due to the huge deficits and increase in debt.  I hope people in Washington aren’t buying it either.