October 13th, 2012
Inspired by Paul Ryan’s analysis of our national debt problem.
“Your share of the debt is now over $50,000 per person, for every man, woman, and child.” – Paul Ryan today in Ohio
Be afraid of the debt.
I’ll remind you later
If you forget.
I’ll make it seem
Much worse than it is.
You can trust me.
I’m the numbers whiz.
“$50,000 per person, for every man, woman, and child.” This is a scare tactic, and it’s not in the least bit accurate. “Your share” of the national debt is not $50,000 ($200K if you have a family of four), because that’s not how we make payments on the debt.
We make payments on the debt with tax revenues based on taxable income, so your share of the debt is the same as your share of federal tax revenue. The key variables therefore are how much income you make and how much tax you pay, not the number of people in your family. In fact, the more people in your family, the more deductions you’ll have and the less tax you’ll pay.
The super-rich would like it if we all paid taxes on a per capita basis, but we don’t (if we did, we wouldn’t have a federal government). If debt is allocated in the same way taxes are (which is the only way it makes sense to allocate them), including to corporations and other sources of federal revenue, then the share of the national debt falls to $55,039 per household. For those in the bottom 50% of the income scale, it’s only $2,480. For households in the top quarter of income earners earning an average of $149,291 (in 2009, the last year for which I could find detailed income and tax data), their average pro-rata share of our $16 trillion national debt is $192,197. For households in the second quarter earning an average $46,971 per year, the average is $22,998. One-percenters? Their share is $2,021,652. But don’t worry: they’re earning an average of almost a million, so they can handle it.
Actually, strike what I said before about tax revenue being the only way to divvy up the national debt: there is another way that would work pretty well. We could pro-rate the debt according to wealth, aka net worth. Since one of government’s main functions is to protect wealth and property, and allow it to be passed down throughout the generations, it seems like that would be a fair way to allocate the debt. In addition, one can make a good case that the extreme accumulation and concentration of wealth that took place over the past decade is in part due to the Bush tax cuts, so retroactively taxing that accumulated wealth to pay down the debt wouldn’t be such a bad thing.
And how would that change the calculation? The share of debt for the bottom 50% would stay about the same, it would go down for the median income/wealth folks, and it would more than double for the top 10% and top 1%. That distribution by income tax is looking pretty good now, isn’t it?
Am I saying that our national debt is not a problem? No, I’m not. It is a problem, and one that we need to address.
But it’s not as bad a problem as they want you to believe. And what they propose will only make the problem worse, not better
Here’s the Romney campaign’s ad pushing this same message.
NB: My calculations are based on data from the Tax Foundation (click here to download the spreadsheet, including my calculations. I used 2009 income data because those are the most recent ones for which detailed income and tax data by income group were available. That doesn’t really matter though, since the share of taxes paid by income group (which is how I allocate the national debt shares) does not vary that much from year to year. The national debt information is however up-to-date (accurate to10/11/12, to be exact), and those are the key factors in the calculation. Note also that most of the difference between debt allocation by wealth and allocation by income tax payment is due to direct allocation of debt that would otherwise be allocated to corporations, and hence indirectly to their shareholders.