Primary deficit

Taking interest out of the picture

The ordinary deficit mixes two very different things: the gap between what current programs cost and what taxes bring in, and the interest owed on borrowing from years or decades ago. The primary deficit strips out the second part. What remains is the cost of decisions being made now.

If the government collects more than it spends before interest, it is running a primary surplus. That can happen while the overall budget is still in deficit, whenever interest costs are larger than the primary surplus.

Why it decides where the debt goes

Whether debt grows faster or slower than the economy depends on three things: the primary balance, the interest rate on the debt, and the growth rate of the economy. When the interest rate is below the growth rate, a country can run modest primary deficits and still see its debt shrink relative to GDP. When the interest rate is above growth, even a balanced primary budget lets the ratio climb, because interest compounds faster than the economy expands.

This is why fiscal plans are built around the primary balance. It is the part lawmakers directly control, and it shows how much adjustment would be needed to stop the debt ratio from rising.

The US position

The United States has run primary deficits in most years since 2002. For much of that period, unusually low interest rates kept the consequences contained. As rates rose after 2022, interest turned from a modest line into one of the largest items in the budget, so the overall deficit can now grow even in years when the primary balance improves.