OMB Director Focuses on ‘Primary Balance’ as ‘Down Payment’ on Fiscal Problems, Doesn’t Count Interest Payments on Debt

By Matt Cover | February 16, 2011 | 5:50 PM EST

The National Debt Clock, a privately funded estimate of the national debt, keeps ticking up in New York. This is where it stood on Monday morning, Feb. 1, 2010. (AP Photo/Mark Lennihan)

( – Office of Management and Budget (OMB) Director Jacob Lew and House Democrats praised the Obama administration’s budget on Tuesday for bringing federal spending and revenue into “primary balance,” calling it a “down payment” on solving the country’s fiscal crisis. However, Republicans dismissed that line of argument, because it does not include interest payments on the federal debt.

Primary balance is when federal revenues are equal to federal spending, minus the interest payments on the national debt. If the budget is in primary balance, the national debt as a portion of the economy will cease to grow. This means that as long as the economy grows at the rate of inflation, the national debt will not grow relative to the economy.

It also means that any actual deficit the government runs will be composed of debt service payments: interest payments on the debt. The Office of Management and Budget estimated that after 2017, the government will run a primary surplus, meaning that it will be paying for all of its spending with tax revenues and can begin contributing some of those revenues to debt service payments.

Lew testified before the House Budget Committee on Tuesday that this seemingly modest goal was a “down payment” on eventually balancing the budget at some undetermined point in the future.

“The president’s budget is a down payment,” Lew said in his prepared remarks. “It puts the government on a path to reach sustainable deficits over the next 10 years. This means that for the first time in 10 years, the government will again be fully paying for all of its programs and the debt will stabilize as a share of GDP [gross domestic product].”

“This is an important milestone – but not the finish line – on the path to a balanced budget,” said Lew.

Rep. Jason Chaffetz (R-Utah) told Lew that only bringing the budget into primary balance was a “down payment on mortgaging our future,” accusing the Obama administration of trying to find a way to have “more government” while appearing to be fiscally responsible.

“It was suggested earlier that the budget reflected priorities and values of those that present them, and I think that in this case it’s true, I think it’s very true,” Rep. Chaffetz said. “That is to say a case is being made by the administration [that] they want big government, more government, [and] the bottom line is this doubles the debt in 10 years and it is fiscally irresponsible.”

Chaffetz said he thought the administration’s characterization of increased federal spending as investment was “reprehensible,” pointing out that it is merely taking money from some people and businesses and giving it to others.

“I find it reprehensible that we continue to talk about investing and other things when we’re pulling money from people’s pockets to try to give it to somebody else,” said the congressman. “The most important thing we could do is to allow money to stay in their own pockets. It’s the American people’s money. It’s not Congress’ money. It’s not the White House’s money.

“We have no sustainable deficit,” Chaffetz charged.

After being pressed by several Republicans, Lew defended the White House’s approach, saying that the federal budget could not be balanced until revenues and spending were equal. Lew argued that this budget was the opening argument over where those levels should even out.

Lew argued that the administration was offering a starting point in bringing the budget into primary balance, essentially trying to set a new baseline for spending and revenue levels.

“You don’t get to balance if your revenue and your spending don’t cross,” Lew said. “The question is at what level they cross providing what we need for the country.”

Lew also testified before the Senate Budget Committee on Tuesday.

Concerning the Obama administration’s budget, committee member Sen. Jeff Sessions (R-Ala.) said in his remarks, “The president submitted a budget yesterday that fails to change course. It was a very unserious response to a very serious situation. The president's budget would increase spending every single year: doubling the nation's public debt by the end of his term, and tripling it by the end of the decade. It would also impose $1.6 trillion in new taxes on families and businesses – a further barrier to jobs and growth.”

“Erskine Bowles, the Democrat Chair of the president's own fiscal commission, didn't mince words,” said Sessions. “Speaking to The Washington Post, Mr. Bowles said that the budget goes ‘nowhere near where they will have to go to resolve our fiscal nightmare.’”