Tuesday, April 12, 2011
If Families Budgeted Like the Government
One of the more curious aspects of the debate over government finances these days is the often-made claim that governments ought to manage their budgets the way families do. It’s curious because most of the people saying that are themselves members of families, but seem to be clueless about how real families operate in the real world.
Consider a hypothetical family we’ll call the Ryans. Joe has a full-time job with good wages and health benefits. Jane works half-time as a medical receptionist, bringing in enough money to cover the rest of the household budget.
They live from paycheck to paycheck, making ends meet. There’s some fat in the budget — piano lessons for the daughter, a camping trip in the mountains every summer, gym memberships, premium cable — but the overwhelming part of it goes for food, housing, fuel, utilities and clothing.
Sooner or later, a lot of stuff happens all at once. Joe learns that his contribution to the health insurance premium went up $200 a month. The roof on the house needs to be replaced, adding $250 a month to the monthly payment on the home equity line. Gasoline prices are up sharply, adding another $100 a month. Both cars break down and need a major repair, which means another $300 a month on the credit card bill, in order to pay it off in a year.
What to do? Most families, I suspect, would take one of two approaches — perhaps a combination of the two.
The first approach would be to squeeze and fake, sort of what Governor Schwarzenegger did in California the past several years. Under this scenario, the Ryans would make some cuts they could live with (eliminate the vacation this year, drive a little less, drop the gym membership, but don’t, for God’s sake, cut the premium cable — that’s television), draw on savings, if there are any, and make the minimum payment on the credit card instead of paying down the auto repairs. They’d go on like this for a while and see how it went.
On the other hand, they might try approaching the problem from the revenue angle. Joe could put in for more overtime, apply for a promotion, or take a part-time job on weekends. Jane could try to get more hours at her job or find a full-time job. Most families I know would make whatever effort they could in this direction.
No family I’ve ever encountered would deal with this situation by having Jane quit her job, then cutting the food budget to nothing but rice and beans, and lighting the house with candles at night. Nor would Joe decline a scheduled pay raise on the grounds that the money belongs to his company’s shareholders, who would spend it more wisely than he.
Yet that’s pretty much what Republicans in Washington and Sacramento are doing by refusing to consider tax revenue as part of the budget solution. Congressional Republicans not only refused to allow the Bush tax cuts to expire, but have proposed cutting the top tax rate another 10 percent, claiming the difference can be made up by simplifying the tax code and eliminating loopholes. Every one of those loopholes, of course, has a devoted constituency that will fight, red in tooth and claw, to preserve it, so it’s unclear how well this approach will work.
If our crisis right now is the deficit — spending more than we’re taking in — then we should by all means cut what we can and take a hard look at the major expenses. But we should also bring in every cent of revenue we can and use it to make ends meet and pay down the debt. That’s elementary, and every family knows it.