Saturday, July 23, 2011
The Federal Deficit v. a Family's Debt: a model to use as rebuttal
I haven't updated this blog in a dog's age (well, a late-adolescent dog's age), but it seems to me that it's the best place to put my latest political rant.
It started with reading Grover Norquist's ridiculous rationale for not raising revenue in the New York Times yesterday. I was angry: the man is a menace! I mean, seriously, I knew that after seeing his appearance on The Colbert Report:
So, that's who he is. Principled, but with questionable principles. "At least he's consistent," some might say.
However, this idea that the Federal government can get out of debt—let alone that we should!—without an increase in revenue is ridiculous.
So I started a thought experiment of sorts: What if I compared myself to the Federal government and tried to show the silliness of his position that way? Then I realized that I'm hardly a good example (living with my folks because I can't raise enough revenue is closer to Greece's relationship with Germany than to the relationship the US Government has with its and the various options). So I went with a model family: A married couple with two children; both the parents graduated college in 2000, and we're going to assume that (a)they each earn the median income for those who got bachelor's degrees that year; (b) they have had some setbacks, and therefore are taking longer than the standard (though by no means "average") ten years it takes to discharge their student loans. Because of how statistical analysis and reporting works, we're pretending about this household's lot in 2010. Also, along the way, it started to show why what look like high family incomes aren't actually all that high a lot of the time. And I'd add that most families I know with parents my age don't have two earners making the median income; usually they have one working full-time in a profitable career, and one working either part-time or in a service/government/arts career, where salaries are often lower than in the for-profit sector. And a lot of families have similar expenses to my hypothetical one, but don't have two parents with college educations and therefore have even fewer financial resources. Their debts are usually even higher than the ones I make up for my model.
The couple married soon after graduation, and had their first child within a year. Their daughter is now ten, their son six years old. Average 2010 salary for a 2000 college graduate is $53,150 before deductions and taxes, so total pretax income is $106,300. Nice income! Totally sufficient to give a posh life to their children!
They live in Seattle, and rent. They did not buy a house during the housing bubble because their jobs weren't entirely stable (they might have to move to another part of the country for work at some point) and they didn't want to incur 30-year debt for a place they might not live in for more than a couple of years. Smart decision! Of course, they do live in Seattle, so the rent on their 3-bedroom apartment is $1900 (which is a steal!).
Now for the less fun stuff. Their original $30,000 in student loans isn't entirely paid off; they owe $5000 still. Not a lot, but it's a bit. They've bought a car (they live in Ballard, and it's really hard to get anywhere in the City without either a car or a LOT of time), and have an $800 monthly payment. And then there's the Inherited Death. One set of grandparents is deceased, and bequeathed their child with all their property—including about $60,000 of debt for hospital bills and a home equity loan. The $60,000 is what's still owed after the couple sells the house.
They decided to be relatively frugal; they got cell phones (including for their children, because goodness knows, they heard stories after 9/11 and desperately want their children to be able to reach them and vice-versa in an emergency). But they have a relatively simple plan: free nights and weekends, unlimited texting, and stupid phones. Their modest plan costs them about $100/month. Water, electric and gas cost about $400 more. And their basic cable and internet service costs only $49.99—at least until the promotion period runs out.
The annual cost of the health insurance they have through the job of one parent is $13,770. This is the average family premium; one parent's company offers better benefits, but for an additional $25/month, so they aren't going with that; the kids are pretty healthy, and the parents are still young. Family rates are cheaper, though they do require that a family decide which job is more stable because you can only enroll in a business's health plan for a period of 3 weeks every year.
After health insurance, life insurance (at $200/month; high, but look at what happened when that parent died!), and taxes (and they thank God there are neither state nor local income taxes!), their monthly income is about $5865. Still, this is pretty good, right?
Well...
...the family has $1665 or so to spare for things like, oh, gas for the car, food for the family, entertainment, clothes, and so on. But they'll survive. After all, they can stop eating out (sack lunches for all!), go jogging instead of joining a gym, get DVD's from the library rather than paying for Netflix. Except...
That $65,000 in debt. It needs to be paid down somehow, and they lower it by doing something like selling property (all they have are their books, their clothes, a 5-year-old entertainment system, furniture that hasn't been updated in years, and their children) or ending a contract (see: Library v. Netflix). Yet it still demands service, and the combined minimum payments push them past their budget.
So what do they do? They turn to credit cards. But those carry high interest rates as well (and in 2010, most families were already carrying a large credit card debt burden). They try cutting expenses even more: no more ballet lessons, and really they can cook a lot of meals from scratch in large batches on Sunday—it'll be a family project. They draw the line at dropping their health insurance altogether; they've seen the consequences of being underinsured, and are in fact paying the consequences of their parents' poor planning. And what else can the family cut from their budget? There's always Goodwill, but the 10-year-old is already pretty self-conscious about the fact that her new clothes are from K-Mart. They can refuse to buy any brand-name foods, but then they're embarrassed when they run into their neighbors at the supermarket. They could move, but there would be short-term moving expenses, their kids would scream bloody murder for weeks at the prospect of sharing a bedroom, and it would only cut the rent by a couple hundred dollars (even though they could give up a bedroom, they'd still need to fit a queen-sized bed into one room and two each of twin beds, child desks, and child dressers into the other; both bedrooms would have to be pretty big).
Then the credit cards max out, and there's only one thing left to do:
Either Mom or Dad will have to get a second job. Because the only way to keep this family afloat is to raise revenue.
Now, comparing a family's budget woes is facile, inaccurate, and dangerous. The governing principles are different (at least until August 2). But the fact remains: there is debt to pay down. We can cut expenses until healthcare drives us to bankruptcy.
But we will still, finally, need to raise revenue. For the family, that means a third employment income. For the government, it means taxes.
It started with reading Grover Norquist's ridiculous rationale for not raising revenue in the New York Times yesterday. I was angry: the man is a menace! I mean, seriously, I knew that after seeing his appearance on The Colbert Report:
| The Colbert Report | Mon - Thurs 11:30pm / 10:30c | |||
| Grover Norquist | ||||
| ||||
So, that's who he is. Principled, but with questionable principles. "At least he's consistent," some might say.
However, this idea that the Federal government can get out of debt—let alone that we should!—without an increase in revenue is ridiculous.
So I started a thought experiment of sorts: What if I compared myself to the Federal government and tried to show the silliness of his position that way? Then I realized that I'm hardly a good example (living with my folks because I can't raise enough revenue is closer to Greece's relationship with Germany than to the relationship the US Government has with its and the various options). So I went with a model family: A married couple with two children; both the parents graduated college in 2000, and we're going to assume that (a)they each earn the median income for those who got bachelor's degrees that year; (b) they have had some setbacks, and therefore are taking longer than the standard (though by no means "average") ten years it takes to discharge their student loans. Because of how statistical analysis and reporting works, we're pretending about this household's lot in 2010. Also, along the way, it started to show why what look like high family incomes aren't actually all that high a lot of the time. And I'd add that most families I know with parents my age don't have two earners making the median income; usually they have one working full-time in a profitable career, and one working either part-time or in a service/government/arts career, where salaries are often lower than in the for-profit sector. And a lot of families have similar expenses to my hypothetical one, but don't have two parents with college educations and therefore have even fewer financial resources. Their debts are usually even higher than the ones I make up for my model.
The couple married soon after graduation, and had their first child within a year. Their daughter is now ten, their son six years old. Average 2010 salary for a 2000 college graduate is $53,150 before deductions and taxes, so total pretax income is $106,300. Nice income! Totally sufficient to give a posh life to their children!
They live in Seattle, and rent. They did not buy a house during the housing bubble because their jobs weren't entirely stable (they might have to move to another part of the country for work at some point) and they didn't want to incur 30-year debt for a place they might not live in for more than a couple of years. Smart decision! Of course, they do live in Seattle, so the rent on their 3-bedroom apartment is $1900 (which is a steal!).
Now for the less fun stuff. Their original $30,000 in student loans isn't entirely paid off; they owe $5000 still. Not a lot, but it's a bit. They've bought a car (they live in Ballard, and it's really hard to get anywhere in the City without either a car or a LOT of time), and have an $800 monthly payment. And then there's the Inherited Death. One set of grandparents is deceased, and bequeathed their child with all their property—including about $60,000 of debt for hospital bills and a home equity loan. The $60,000 is what's still owed after the couple sells the house.
They decided to be relatively frugal; they got cell phones (including for their children, because goodness knows, they heard stories after 9/11 and desperately want their children to be able to reach them and vice-versa in an emergency). But they have a relatively simple plan: free nights and weekends, unlimited texting, and stupid phones. Their modest plan costs them about $100/month. Water, electric and gas cost about $400 more. And their basic cable and internet service costs only $49.99—at least until the promotion period runs out.
The annual cost of the health insurance they have through the job of one parent is $13,770. This is the average family premium; one parent's company offers better benefits, but for an additional $25/month, so they aren't going with that; the kids are pretty healthy, and the parents are still young. Family rates are cheaper, though they do require that a family decide which job is more stable because you can only enroll in a business's health plan for a period of 3 weeks every year.
After health insurance, life insurance (at $200/month; high, but look at what happened when that parent died!), and taxes (and they thank God there are neither state nor local income taxes!), their monthly income is about $5865. Still, this is pretty good, right?
Well...
Rent $1900 Childcare/After School programs
(two children)
$950Car payment $800 Internet/Cable/Landline $50 Cell phones $100 Heat/Electric/Water $400 TOTAL $4200
...the family has $1665 or so to spare for things like, oh, gas for the car, food for the family, entertainment, clothes, and so on. But they'll survive. After all, they can stop eating out (sack lunches for all!), go jogging instead of joining a gym, get DVD's from the library rather than paying for Netflix. Except...
That $65,000 in debt. It needs to be paid down somehow, and they lower it by doing something like selling property (all they have are their books, their clothes, a 5-year-old entertainment system, furniture that hasn't been updated in years, and their children) or ending a contract (see: Library v. Netflix). Yet it still demands service, and the combined minimum payments push them past their budget.
So what do they do? They turn to credit cards. But those carry high interest rates as well (and in 2010, most families were already carrying a large credit card debt burden). They try cutting expenses even more: no more ballet lessons, and really they can cook a lot of meals from scratch in large batches on Sunday—it'll be a family project. They draw the line at dropping their health insurance altogether; they've seen the consequences of being underinsured, and are in fact paying the consequences of their parents' poor planning. And what else can the family cut from their budget? There's always Goodwill, but the 10-year-old is already pretty self-conscious about the fact that her new clothes are from K-Mart. They can refuse to buy any brand-name foods, but then they're embarrassed when they run into their neighbors at the supermarket. They could move, but there would be short-term moving expenses, their kids would scream bloody murder for weeks at the prospect of sharing a bedroom, and it would only cut the rent by a couple hundred dollars (even though they could give up a bedroom, they'd still need to fit a queen-sized bed into one room and two each of twin beds, child desks, and child dressers into the other; both bedrooms would have to be pretty big).
Then the credit cards max out, and there's only one thing left to do:
Either Mom or Dad will have to get a second job. Because the only way to keep this family afloat is to raise revenue.
Now, comparing a family's budget woes is facile, inaccurate, and dangerous. The governing principles are different (at least until August 2). But the fact remains: there is debt to pay down. We can cut expenses until healthcare drives us to bankruptcy.
But we will still, finally, need to raise revenue. For the family, that means a third employment income. For the government, it means taxes.
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