Tuesday, April 17, 2012

Government Budget vs. Your Household Budget

The Romney Campaign recently released their version of a chart that relates the government budget to a household budget by knocking all the extra zeros off the end.  The point of this chart - like the other iterations that came before it - is to try to reduce the astronomical national budget numbers to values that the average working American can wrap their heads around more easily. When you hear numbers like "billions" and "trillions" and you see figures with 9 or 10 zeros after them, they do kind of seem unreal and almost meaningless.  So, drop the zeros and a fantastically large number becomes something the average Joe can understand.

For the Romney campaign, the point of doing this, obviously, is to point out how out of control government spending is, how reckless and irresponsible the government is with our money and how a conservative Republican is desperately needed to rein in that big government bloat before it bankrupts our nation.  This is the chart the Romney campaign has begun circulating:

Now, in the interest of full disclosure, the official Romney version of this chart includes some partisan rhetoric at the bottom, but for the purpose of this discussion I'm only interested in the numbers, presented as fact, in this chart - not the political opinion given by the Romney campaign.  So, let's look at these numbers...

First of all, the hypothetical household income, created simply by dropping the zeros from the federal revenue, would be considered low income based on the current standard.  The middle-class average income right now is about $50,000 per year, so $24,686 would be less than half that, which, for a family of four, would be hovering around the poverty level.  This is important because clearly the problems of an underfunded government aren't that different from the problems of an underfunded household.

The Romney chart then drops the zeros from the government outlays section to relate it to household expenses, to show how ridiculous it is for a family earning $24,686 to be spending $37,955 per year.  Well...

If this family of four, living on less than $25,000 per year, expects to live in a decent house or apartment and drive reliable vehicles to get to work and have the basic necessities of life, they're going to be living beyond their means.  $24,686 is just not enough to provide the "American Dream" of home ownership and accumulating a personal savings account, the kinds of things that middle-class families took for granted just 3 decades ago.  So, let's assume that this "average" family is going to rent, since no bank would give them a home loan with such a low annual income.  Now, I don't know where this family lives, but in California, the average rental price for a modest, single-family, 3BR home is about $1,000-$1,400 per month.  A 3BR apartment rents for roughly the same amount.  Let's also assume that this income is the product of just the father in this hypothetical family working, while mom stays home to save on child care costs, thus they will have either only one new(ish) vehicle or two older, cheaper and less reliable used cars so mom can still take the kids to school and run errands around town while dad works.  Their average monthly auto expense is going to be somewhere around $600-800, including insurance but not including the cost of gas, which at the current per gallon price is anywhere from $200-400 per month, depending on how far dad has to drive to get to work.  The average family lives about 20-30 minutes away from their jobs, so 1-2 tanks of gas per week is not uncommon fuel consumption.

So, we've just covered rent, cars and fuel and we're running between $1,800-2,600 per month.  At the high end of those figures, our hypothetical family would already be over budget and they haven't even bought food or paid for health care yet.

Food costs for the average family of four aren't cheap.  Now, CA state social services gives $200 per month in EBT benefits for the average adult, so if we assume a minimum of $200 per month per adult and half that for each of the two kids, then that's an average monthly food budget of $600.  Health insurance for the average family runs anywhere from $250-500+ and I think we can safely assume that any job that pays less than $25k per year probably doesn't provide free health insurance coverage as part of its benefits package.  So, either our family is paying those costs, or they're going to the state for medicare or other help.  Now, since the government can't turn to itself for low-cost alternatives to its operating expenses, we must assume our hypothetical family of four can't accept government help either.  So, those health care costs are being borne by the family.  There's also the utility costs associated with living in a house or apartment, such as electricity, gas, water, garbage and phone service.  Cell phones are pretty much an essential service these days, to the point that many households (including mine) don't even have home lines anymore and instead just use cell phones for everything.  The average cost of a monthly phone plan for a family of four is about $200.  The average utility cost is about $300 per month.

So, we're looking at about $1,200 per month for food, health insurance, utilities and phone service.  The average monthly expense for that family of four is up to $3,000-$3,800 per month and we still have more to go...

Those two kids are going to need to go to school.  This means, among other things, that they will need school supplies and clothes.  Now, I'll assume that, since this is a low-income family, they aren't buying expensive clothes and going shopping every weekend.  Instead, I will assume they're like my family was when I was a kid and they go school shopping a week or so before school starts and that's it, so you better treat your school clothes good because you aren't getting more until next year!  Ok, flashback over.  At any rate, let's assume a conservative expense of $1,200 per year for clothes and shoes for two kids, or about $100 per month.  Let's also assume a similar cost for school-related expenses, like field trips, supplies and other costs that are no longer covered by most states public school budgets.  In fact, I'll be generous and drop that to about $50 per month.  

Now, I don't know what kind of miscellaneous and entertainment expenses this hypothetical family should be allowed to have, but I assume that simply working and staying alive isn't enough to make them happy and feel fulfilled, so I'll give them the basic entertainment expenses of the average family, namely cable tv, internet and a small allotment for a pizza night here and there and the occasional family outing.  This isn't too much to ask, really, and for the average family, this is a fraction of what their typical misc. and entertainment expenses actually are.  But, since this family is trying to be as responsible as they can, we'll assume they're satisfied with this modest luxury expenditure.  So, for a standard cable tv and internet package, infrequent family outings and the like, we're looking at about $300-400 per month.

Now, adding in clothes, school supplies and a modest family entertainment expense and we're at about $3,500-$4,300 per month.

So, let's look at that budget chart again!

Now, I feel that the numbers I've worked out here are very conservative.  They don't account for unexpected costs, such as our hypothetical family's cheaper used car breaking down, one of the kids getting hurt while playing around and needing to go to the hospital or any other unforeseen costs that can devastate a family that is already living paycheck to paycheck.  I'm not accounting for the interest charges on the massive credit card debt that this family will have to accumulate in order to cover their monthly expenses due to them earning over $1,000 less than they need.  That being said:

If the government were a family of four, it would have an income of $24,686, annual expenses of $37,955, new debt of $13,269 per year and a total family debt of $163,509.

However, if this hypothetical family of four were an actual family of four, living on an income of $24,686, it would have an annual expense of $46,800, new debt of $22,114 and a total family debt of $265,368.

In other words, the government - as a family of four - is more responsible and able to operate on a tighter budget than a real life family of four currently is.  

All of this criticism of big government waste and how much more reckless and irresponsible the government is with our money than we would be with it ourselves and, when you break it down, the government is doing more with less - as a relative percentage - than the average middle-class family who is so critical of the fiscal irresponsibility of our government.

Of course, that's not even mentioning the fact that the Obama administration has already begun paring domestic spending down to the lowest level since the Eisenhower administration.

This is an important conversation to have, however.  All rhetoric aside, it's important to point out the similarities and stark contrasts between the government's budget, relative to income, vs. the average household's budget.  Not just to show how fiscally responsible the government actually is once you strip it down, but also to point out how woefully over budget the average American household really is and how much is being asked of them just to make it from month to month.  For example, the significant and rising health care costs for the average family of four that could be eliminated by the reforms under the Affordable Care Act.  

It's also important to spotlight the comparison and contrasts of the federal budget with the average household budget to point out the fundamental difference between Romney's plan and the presidents.  Under Romney's plan, both the government budget and the hypothetical low-income family's budgets would be significantly reduced in terms of income and in both cases it would be so that extra money could go into the pockets of the wealthiest Americans, the invisible family that exists on a different chart.  Romney's proposed tax giveaway for the ultra rich would take billions from the federal budget and add it to the deficit and would only trickle down to a few hundred dollars a year, if that, for the average family earning in the range that Romney is using in his chart.

Or, to put it in chart terms, Romney wants to increase the family revenue portion from $24,686 to about $25,000 and increase the family debt portion from $265,368 to about $300,000.

In my opinion, the best thing the Romney campaign can do is continue to engage the Obama administration in simplified, household budget comparison discussions about federal spending and tax equity, it's the best way I can think of to point out to the average voting American just how dangerous Romney's fiscal plan really is, not just to the essential operation of our government but to the average American's household budget.


  1. I love how all of you miss the point of this infographic. Go ahead and set the struggling family income to $100,000 and adjust all the other numbers proportionately if that helps you understand it better. Families making $100,000 a year often still fail to make ends meet. It's pathetic. The point is: it's not about income level, it's about spending within your means.

    Learn to live within your means! This applies to the the American people as well as the US government.

  2. God bless you that you're so fortunate to be able to pay cash for your home and every car you've ever owned, and your college education.

  3. Thanks for trying to turn my comment into some kind of class warfare. I'm not rich, I make much less than the average American. But I do live within my means to build wealth and I do buy everything in cash aside from my small home, which is an asset that gains value. That's called investing. Paying in cash isn't something only rich people can do. Look at this guy: the website earlyretirementextreme. He lives well on less than $10,000 a year. Living within your means is a choice. People survived before credit card dept. Smart people continue to do so.

    Wealth and dept are also cross generational. I choose to sacrifice my wants and "needs" now so my children will have more freedom and choice. You can enslave your posterity all you want or leave them nothing. That's your choice. But I refuse to give my children's future to a government that can't balance it's own checkbook.

  4. My point had nothing to do with class warfare, actually. If the hypothetical family of four earning $25,000 per year is expected to "live within their means" then those means will be extremely sparse and things that other people take for granted would be considered luxuries to them. Well, if our government had to magically live under the constraints of it's revenue intake and the option of using credit and adding to the deficit were completely removed, then government services would be extremely sparse and things that most of us take for granted as being provided by the government would be considered luxuries. Stuff like Social Security, Medicare, the FDA, the USDA and other agencies that make sure our food and water are safe for consumption, those sorts of things.

    See, the difference between a typical family on an austere budget and government on that same budget is that a family must prioritize things to ensure their survival - stuff like food, shelter, clothing, etc. Government doesn't need to prioritize any of those things. Government's priority is set by those running government - the politicians - and their only priority is their own continued employment and financial security. This means that government programs that benefit people like yourself - hard-working, middle-class Americans - would be eliminated and big tax giveaways to corporations, subsidies for well-connected industries and no-bid blank check contracts to campaign contributors would be preserved. There is nothing more damaging to a democracy than a populous who allow themselves to be pitted against their own government and nothing that erodes the strength of the working class more than middle-class voters who are convinced that voting against their own best interests will somehow actually benefit them.

    I'm all for reforming government spending and reining in the waste, don't get me wrong. But, this fantasy world Tea Party conservatives live in where everyone somehow lives within their means and if an average household can, then the largest government of the greatest economy on Earth should be able to also is just that, a fantasy world. Here in reality, most Americans have no choice but to live in debt if they want any kind of quality of life whatsoever and a government that inherits a massive deficit and trillions in unfunded expenditures can only cut so much to fill that hole before they have to increase revenues. Someone is going to have to pay more to get us out of the deficit that we have accumulated, I would just rather not see that burden fall on the already struggling middle-class, the only segment of our economy that still hasn't recovered from the recession.

    1. That was a lot of words to say "we're not willing to make sacrifice." Over half the budget is luxury programs that fail to produce any positive results. Face it, the handouts have produced a country of entitled leaches.