November 22, 2014

What is “primary balance” in the federal budget?

The President charged his bipartisan fiscal commission with making recommendations late this year to put the federal budget on a more sustainable path, including what is known as “primary budget balance” by 2015. This means the budget would be balanced except for interest payments on the federal debt. At that point, the nation’s economic growth would only need to keep up with interest rates in order to stabilize the debt. Most economists consider total deficits of around 3 percent of the Gross Domestic Product to be economically sustainable. The administration last week estimated the primary deficit for the current fiscal year at nearly $1.29 trillion, compared to a $1.47 trillion deficit figure when interest payments are included.