Americans need to fully grasp just how scary dangerous the nation’s debt problem really is. Washington sure won’t deal it unless given a firm shove by voters. The tea party needs to get a lot bigger.
So President Barack Obama does them no favor by downplaying debt interest costs to make his budget look better. While his focus on the “primary deficit” — the budget shortfall not counting debt payments — can provide a helpful fiscal snapshot, it ultimately misleads as to the true scope of the challenge.
Obama certainly isn’t the first president to try and put a favorable spin on some unpleasant financial numbers. George W. Bush, for instance, consistently neglected to include the cost of the Iraq and Afghanistan wars when submitting annual defense budgets to Congress. And recall that Bill Clinton loved to crow about putting Uncle Sam back into the black. But his surpluses would have mostly vanished if he, as continues to be the custom, hadn’t been quietly borrowing excess funding from the Social Security trust fund.
In his new conference last week, Obama stated that by the middle of the decade, his just-released budget would “not be adding more to the national debt. … We’re not going to be running up the credit card anymore.” Yet from 2015 through 2021, the Obama budget would add $4.7 trillion to the national debt. And public debt as a share of the overall economy would rise to 77.0 percent from 76.1 percent.
But the president tossed in a qualifier: “Our annual spending will match our annual revenues.” Well, that clears things up. If you don’t count $3.7 trillion in interest payments as part of spending, the budget is balanced in 2017 and then slowly builds a tiny surplus.
The technocrats at the IMF would surely applaud. They view elimination of primary deficits — by balancing revenue and regular spending — as a key first step to restoring fiscal health for heavily indebted nations.
But America needs to take many more steps. Obama’s primary surpluses will quickly disappear in coming decades as government healthcare spending explodes. And if the economy grows a bit more slowly than what White House economists now forecast – say, more like the predictions from the Congressional Budget Office – Obama’s primary deficits would never disappear at all.
It also seems risky to downplay interest costs when America’s finances are more vulnerable to interest rates than those of many nations because it has to refinance its debt relatively frequently. Through September, according to the IMF, the typical maturity on U.S. debt was 4.7 years against an average of 7.1 years for advanced economies. The UK’s average was 13.3 years, with Germany and France at about half that. Even troubled Greece and Portugal borrow for longer, on average, than the United States.
Meanwhile, total federal debt net of what’s held in government accounts is currently running at 62 percent of GDP and is forecast in the budget to reach 77 percent of GDP in 2021. Mr. Market, in the form of bond investors, isn’t yet making big enough waves to force politicians to act.
Obscuring the difference between fully balancing the budget and a somewhat less disciplined approach may help ensure voters won’t, either. Unfortunately, Obama’s new attentiveness to the primary deficit looks like a political dodge.