Our coronavirus coverage is free for the first 24 hours. Find the latest information at Please consider subscribing or donating.

  1. Archive

Deficit is not so easily defined

America's budget deficit may exceed $400-billion, but not one person in 10,000 _ including most members of Congress and professors of economics _ has the foggiest idea how the deficit is, or should be, defined.

This disagreement arises because the budget is not simply a way to divide up revenues but also a way to stimulate or cool down the economy by influencing purchasing power, growth, inflation, interest and exchange rates.

The nation must agree on what is in the budget and its deficit before it goes to war over its size and how to deal with it. There are several major questions for which there are no simple answers but whose answers dramatically change the size of the deficit.

Should interest payments be part of the deficit?

No, some say. They argue that when interest rates go up, the deficit automatically rises by the increase in interest costs, yet unlike normal budget expenditures this increase does not create any new demand for goods and services. They also argue that interest costs relate to the financing of the deficit and should not be considered part of the deficit.

Opponents of this view, including us, argue that interest, which absorbs 18 percent of federal revenue today, could eventually absorb almost all such revenue _ and then what?

Is a deficit caused by a shortfall in revenues in a recession a true deficit?

No, some say. During recessions, taxes fall. This creates a deficit, but it is not a bad deficit, for there is slack in the economy, and additional purchasing power will not create inflationary pressures.

But we argue that recessionary deficits increase debt and long-term interest burdens, and therefore cannot be ignored.

Should capital expenditures be included in the same budget as ordinary expenditures?

Capital expenditures, some argue, are long-term assets; thus, deficits created by spending on roads, schools and harbors should be excluded from the operating deficit.

Opponents argue that capital and other expenditures chase goods and services and have an immediate economic impact and thus should be included. We would propose a separate capital budget as part of the grand total.

Should the savings and loan fiasco be included in the budget?

Some say that depositors in failed banks gained no additional purchasing power because of the government rescue. These depositors never realized their savings were in jeopardy. If the government had not protected them, many depositors would have been wiped out and national purchasing power would have been drastically reduced. On balance, we agree with this analysis.

Opponents argue that the government must still borrow money to replenish the insurance funds and that such borrowing creates higher long-term interest burdens.

Should the Social Security programs remain in a unified budget?

No, some say. Social Security funds are held in trust for the participants and should not be used to distort the size of the deficit. But we argue that the surplus (or deficit) in the trust funds has a major impact on the economy and that this reality should be recognized.

Depending on which items are included, the $351.9-billion deficit in Bush's budget request for fiscal 1993 could be as high as $470-billion or become a surplus of $155-billion! The issues cannot be answered with a simple yes or no. A campaign is not the ideal time to debate these issues. But the president-elect should immediately appoint a new bipartisan commission to review the rules.

When a new debate is joined over a balanced budget amendment or a revised Gramm-Rudman act, the participants should first know what is meant by the deficit.

Charles J. Zwick was director of the Bureau of the Budget and Peter A. Lewis was assistant director in the Johnson administration.