This quote from Dave Ramsey has been floating around:
"If the US Government was a family, they would be making $58,000 a year, they spend $75,000 a year, & are $327,000 in credit card debt. They are currently proposing BIG spending cuts to reduce their spending to $72,000 a year. These are the actual proportions of the federal budget & debt, reduced to a level that we can understand."
(I can’t find where Dave Ramsey actually said that, so if someone could send me the source, I’d appreciate it.)
Regardless of who said it, there are a number of big problems with it.
No credibility. There are no sources given for any of the proportions stated — this ought always to be a big red flag that the quote is more of a juicy sound byte than an intellectually honest look at the situation. Also, the link to the source where Dave Ramsey originally said this is never given.
The proportions are wrong. Without any sources, it’s impossible to tell where the $58k/$75k/$327k proportions were derived from, but they are certainly a good deal off the Congressional Budget Office’s reported figures for revenue and outlays.
It’s wrong to classify all U.S. debt as credit card debt. “Credit card debt” is probably meant as a derisive reference to entitlement/welfare programs or other “non-essential” spending, but not all federal borrowing is of this kind. A significant portion of U.S. debt (roughly 25%) is for capital investment in things like defense and infrastructure - more like a home mortgage than credit card debt.
It draws attention to spending and ignores earnings. This metaphorical family has the freedom to request a raise as well as reducing spending in order to reduce its debt. Its annual income has more than tripled since it began to incur this debt. In addition, the family’s salary is technically higher than what is stated, but it volunteered return some of its salary to its employer (extending Bush tax cuts). In any case, it is normal for a family to incur significant debt early on in life (student loans, mortgage, e.g.), and then reduce the impact of the debt mainly by growing its earnings over time.
- It says nothing about how the family got where it is today. Is the family financially better or worse off than it was two or ten years ago? Did it used to earn more money or is it just spending more now? Or both?
Here’s a more accurate and informative version of the analogy:
|Family Annual Income||$54,000||$64,000||$58,000*||Annual Spending||$50,000||$81,000||$96,000|
|Total mortgage & credit card debt||$89,000||$166,000||$245,000|
* Family’s “salary” in 2011 is actually $68,000 but they gave $10,000 back to their employers (Equivalent of CBO’s estimate in 2011 of extending Bush tax cuts).
Figures are adjusted for inflation and normalized based on the proportions to $2.228 trillion = $58,000. Sources: Wolfram Alpha — Debt (publicly held), Receipts, and Spending, and the CBO Budget and Economic Outlook: Fiscal Years 2011-2021 (PDF)
No it doesn’t sound as catchy on the radio, but that’s the way real life is sometimes: a little more complicated than you’d like to think.