Comparing Federal Budget to a Household

The following letter to the editor appeared the San Antonio newspaper recently.  I think the letter-writer had a good point, but overlooked something, too.  Here's the letter, followed by my response:

"I want to provide some interesting information regarding the federal budget.

At the end of June, the government's income was $2.17 trillion. The budget was $3.82 trillion. New debt was $1.65 trillion. National debt was $14.27 trillion and recent budget cuts ($38.5 billion) totaled about 1 percent of the budget.

Now, let's take the above figures, cut off nine zeros and apply the results to a fictitious clan called the “Smith family.”

Total annual income of the Smith family is $21,700.

The amount of money the Smith family spent is $38,200.

The amount of new debt added to the Smiths' credit card is $16,500.

The outstanding balance on their credit card is now $142,710 and the amount they cut from the family budget was $385.

Do you know any family that would cut $385 from its budget in order to solve $16,500 in deficit spending? America's economic situation becomes more frightening with each passing day.

Harold Estep"

Here's my (unpublished) comment on Mr. Estep's letter:

Harold Estep's letter (The'Smith Family', 9/3/11) that puts the federal budget in terms of a family budget is helpful and apt. A family spending $38,200 a year while earning $21,700 DOES need to cut spending dramatically. But it would be stupid for the parents to say "it's unfair to ask us to work any harder: after all, we're bringing in $21,700, and the children aren't bringing home a thing! We can save a lot of money by dumping the kids and Grandma and moving to a tiny apartment."


We shouldn't expect the parents to suddenly start earning an extra $16,500 a year. But we also shouldn't assume that all $16,500 of their expenses are unnecessary. There's a middle ground somewhere: less spending AND more income. At the federal level, we need a committment to balancing the budget, not a committment to 'no new taxes.' Mr. Estep is right: we DO need major cuts in spending. But that's not the entire solution."

Debt crisis: neither "side" reflects my views

The whole debt-limit crisis debate in Washington off target.  Clearly the debt-limit needs to be raised.  Going to a balanced budget cold-turkey without defaulting on our debts would require massive and immediate termination of tens of thousands of government jobs and/or reduction of payments to retirees and others currently receiving benefits.  Direct and indirect job losses would reduce tax receipts.  Reduced revenues would require further immediate reductions in government spending, and the economy would spiral downward at exactly the same time that the safety net disappeared. 

A significant portion of our economy is based on government spending.  I'm not saying this is a good thing.  But it is a fact.  Government spending directly supports large numbers of jobs.  Government benefit payments indirectly support an even larger number of jobs, because the money retirees receive gets spent, one way or another, and some of this spending supports jobs.

Republicans leaders know this.  They're not saying they won't raise the debt ceiling; they are only using the debt ceiling as leverage in their fight against government spending.  Even the balanced-budget amendment they propose would not go into effect until the fifth fiscal year after it is ratified.

There is no question that the Democrats also want to raise the debt ceiling.

So neither major party is saying the debt-ceiling shouldn't be raised.  But the country is facing a very real crisis because the debt-ceiling hasn't been raised.  The two parties are playing a game of chicken; each wants the other to back down in order to avoid a tragedy that would be far worse than either's plan.   And the public is being asked to choose sides. After all, the obvious way to avoid catastrophe is for one side or the other to win.  And if neither side can win, the next best thing for the nation, supposedly,  is a compromise. 

The press is racheting up the pressure on government leaders with stories warning the public about how the debt-ceiling impass could negatively affect citizens through higher interest rates and delayed or reduced benefits payments.

But the real story is how all this affects our nation's credit rating.  If our credit rating goes down we'll have a harder time borrowing money to fund our deficit and a harder time refinancing the $14 Trillion debt we've already incurred.  This 'harder time' will be reflected in higher interest rates for the government, which will increase the deficit even more.  And that's exactly what we don't need.

The Republicans are correct that we can't afford to keep spending at the same rate as we've been spending.  The Democrats are correct that we need to increase the debt-ceiling enough to get past the current crisis and not have the threat of the crisis returning in just a few months.  We've got to do something about the deficit, but risking the negative effects of not paying our bills is shooting ourselves in the foot.

But the Republican idea that low taxes are part of the solution to our deficit problem is ridiculous.  And yet the Democrats seem to have ceded this issue.   President Obama caved to this unreasonable position back in January when he agreed to extend the Bush tax cuts to everyone.  And neither the Democrats or the Republicans include any tax increases in their plans. 

Neither side has a reasonable position.  And the public is being encouraged to think selfishly about themselves, rather than our nation, when they consider the issue. 

I can't support any of these positions.  We need to raise the debt ceiling now.  We need to cut spending as soon as possible.  And we need to raise taxes so we can start down the road back to a budget surplus so we can get our debt down to a reasonable level.