Which Budget Deficit to Target?

Andrew Samwick on fiscal policy. He writes:

Vox Baby: Which Budget Deficit to Target?: A comment on a recent post asks:

Do you think we should use the on-budget deficit to measure our nation's short-term fiscal health? I thought most people looked at the unified deficit, measuring how much the US government has to borrow from the markets.

Calculated Risk's graph seems to show the increase in "national debt", rather than in "debt held by the public." But the "national debt" includes accruals to the Social Security and Medicare trust funds, which are merely intergovernmental accounting transfers. Do you subscribe to this as an appropriate metric?

I'm being deliberate in endorsing the on-budget deficit for the "must average to zero" standard and national debt (as opposed to that held by the public) for the "no Debt/GDP trend" standard. The key adjustment to the off-budget deficit is demographic, not cyclical. We are in a period when Social Security surpluses are being run in the anticipation of deficits as the Baby Boom retires.

Suppose, counterfactually, that the present value of those off-budget surpluses and deficits is zero. If we are targeting the unified deficit, then the current off-budget surpluses enable larger on-budget deficits in the near term. That wouldn't be too problematic if I thought that the looming off-budget deficits would cause the government to run comparably smaller on-budget deficits in those years. (An analogous argument holds if we use debt held by the public rather than national debt when assessing the trend in Debt/GDP.)

I don't think that will happen. We cannot get the on-budget account out of deficit, much less into surplus. The government is not releasing (or even making) budgets with a long enough time horizon to capture the demographic impact on the General Fund. Government officials are not targeting the unified deficit because they deliberately intend to have that future path of on-budget surpluses. They are targeting it because it postpones tough fiscal decisions of cutting spending or raising taxes to someone else's watch. That postponement needs to stop.

If we continue to amble along on our current path, then I expect that in 10 - 15 years, politicians will opportunistically switch to targeting the on-budget deficit when the off-budget account turns from surplus to deficit. And given that expectation, I want them targeting the on-budget account today, as a means of imposing some fiscal discipline.