Taxes — January 6, 2013 at 10:19 am

Busting the “Federal budget is just like a family budget” myth


Let’s get some perspective on this, shall we?

One of the most widely prevalent myths being perpetrated on the right is that the federal budget should be seen as just a much larger version of a family budget. “American families are forced to live within their budget every day,” we’re told. “The federal government should do the same.”

Laura Clawson at Daily Kos has a marvelous piece up this morning that shows just how fail that argument is, mainly because it leaves out some very inconvenient truths about what our federal government looks like.

Her piece is titled “You want to compare the U.S. budget to a family budget? Let’s be real about it.” It stems from a piece making the rounds on Facebook that said it’s easier to look at the federal budget if you lop off eight zeros and then look at it like a family budget. Then it looks like this:

Annual family income: $21,700
Money the family spent: $38,200
New debt on the credit card: $16,500
Outstanding balance on the credit card: $142,710
Budget cuts so far: $38.50

Clawson then goes on to show just how farcical this way of looking at it is. First she says, no family would look at this dire situation and try to solve it by cutting their budget. They would try to increase revenues. Take on new jobs, try to get better-paying jobs, ask those who can to contribute more, things like that. As she points out, this view forgets to take into account that this mythical family has several very wealthy relatives living with them that consume as much or more than the others in the house but contribute less:

First off, this set of numbers tips its hand by only talk about cutting budgets, not increasing income for this fictional family. Which is interesting, because one of the big problems the America-family has is that a bunch of rich relatives are living in the house not doing their fair share to cover expenses. We’ve got an uncle who’s down in the kitchen all the time telling the rest of us to eat nothing but beans and rice because we can’t afford fresh vegetables and meat, and telling us to turn down the heat in the house if we’re having trouble covering the power bill. And no, he’s not going to share his giant steak because it’s his and he bought it with his own money. But meanwhile, we’re paying the electric bill for that space heater he’s always running in his room, because he’s not gonna be cold even if the rest of us are. And we’re paying the gas bill for cooking that steak he didn’t share. So a big part of that spending problem we allegedly have is that some people aren’t acting like we’re a family where everyone contributes to the income side.

She also points out how this family of ours has smartly made some investments in the future: better education for the kids so that they can help bring in more money than just working at Walmart, a load to the family furniture-making business to grow it and its revenue potential.

She reminds us that our family go hit by a pretty nasty storm that destroyed part of the house and had to pay for that.

In other words, you can’t just take a bunch of numbers out of context and pretend that they represent the larger reality of why we are where we are today. She actually skips over one major factor: not only are the wealthy relatives living with us not contributing their fair share, about ten years ago one wealthy uncle that lived in the house made sure that the amount of revenues coming in to the family from the wealthiest members would ALWAYS be proportionally lower than the rest of us. Even though that rich uncle is now gone and not living in the house, the impact of his move is that the family can’t possibly meet its family budget because they are all but guaranteed to not have enough money coming in. The remaining wealthy residents are doing fine, though, thank you very much.

She finishes with this caution against oversimplifying this discussion:

So, yeah, it’s been a tough year what with the storm and all the rich relatives living in our house, running up the bills, but only contributing like 13 percent of their money to the family budget while a lot of us with much less money are contributing more like 30 percent. We’re trying to invest for the future, though, and fighting to get those rich relatives to contribute a little more to the family budget. We’ll see how things go with that, but meanwhile, it’s not helpful to just strip the numbers down without any context for why we took in so little, or why we spent what we did.

It’s a smart piece and commend your attention to it.