In order to understand the magnitude of government spending, debt and fiscal cliff “solutions”, it is helpful to scale down the numbers to more manageable ones that we are more accustomed to. Most citizens cannot properly comprehend the magnitude of the government finances because the amounts with which we are dealing were — at one time — unimaginable.

First, some basic facts:

1. Government annual revenue FY2012 = $2.5T ($2,500,000,000,000)

2. Government annual spending FY2012 = $3.8T ($3,800,000,000,000)

3. Government annual deficit FY2012 = $1.3T ($1,300,000,000)

4. Current total government debt = $16.37T ($16,372,000,000,000)

5. Population of the United States = 314M people (314,000,000)

6. Current total Medicare liabilities (per the Annual Trustees Report) = $42.8T ($42,800,000,000,000)

7. Current total Social Security liabilities (per the Annual Trustees Report) = $20.5T ($20,500,000,000,000)

The best way to visualize the numbers is to reduce each figure by $10 million ($10,000,000 – or 8 zeros). So for instance, $2.5 trillion becomes $25,000 and so forth. Then, we can apply those numbers for a typical family in three parts: 1) Annual Deficit; 2) Current Debt (“Shadow Debt”); and 3) Entitlement (“Future”) Debt. The following scenario will be based on a family of three. And finally, we can see the proposed fiscal cliff solutions and their impact with these scaled down numbers.

1) Annual Revenue & Debt (all numbers below are equivalents reduced by $10 million)

Revenue = $25,000

Spending = $38,000

Annual Deficit: $13,000

2) Current Debt (“Shadow Debt”– think your mortgage, credit cards, etc)

Each citizen share of debt = $163,700/3.14 = $52,000

Citizen share x 3 people (family of three) = $156,000.

Current Government Debt for Family = $156K

3) Promised/Future Debt to Pay to Others (Entitlements)

Medicare: $428,000/3.14 = $136,000 per person

Citizen share x 3 = $408,000 for Medicare per family

Social Security: $205,000/3.14 = $65,000 per person

Citizen share x 3 = $195,000 for Medicare per family

Total “Promised” Debt for Family of Three = $408,000 + $195,000 = $603,000

How do the Fiscal Cliff plans impact this debt?

Current Obama Plan: Cut $850B over 10 years, plus add $1.3T in revenue

$850B = $85 Billion a year ($85,000,000,000), or $850 a year (scaled down)

Citizen share of cuts = $850/3.14 = $270 per person; x 3 = $812 a year

$1.3T = $130 Billion a year ($130,000,000,000) or $1300 a year (scaled down)

Citizen share of revenue = 1300/3.14 = $414 a year; x 3 = $1242 in revenue/year

Current Boehner Plan: Cut $1 Trillion over 10 years, plus add $1 Trillion in Revenue

$1T = $100 Billion a year ($100,000,000,000) or $ 1,000 a year (scaled down)

Citizen share of cuts = $1,000/3.14 = $318 per person; x 3 = $955 a year

$1T = $100 Billion a year ($100,000,000,000) or $ 1,000 a year (scaled down)

Citizen share of revenue = $1,000/3.14 = $318 per person; x 3 = $955 a year

Total Current Financial Picture for a Family of Three, on a $25,000 income

Annual Revenue: $25,000

Annual Expenses/Deficit per year: $13,000

Current Shadow Debt: $156,000 (ie. like mortgage & credit cards)

Promised Future Entitlement Debt: $603,000

Total Family Debt on a $25,000 Income = $759,000 + $13,000 in annual added deficits

Debt “Fiscal Cliff” Solutions:

Obama’s Plan: cuts a mere $812 a year for 10 years and adds $1242 in revenue

Boehner’s Plan: cuts a mere $955 a year for 10 years and adds $955 in revenue.

These numbers, brought down to equivalent figures, are a scary and sober reminder about just how deep in debt our country is. Both solutions barely make a dent in solving our fiscal crisis. So, what do we do? Where do we go from here? What reforms are needed — both short and long-term?

Cross-posted at alanjoelny.com

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