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Federal Government Wed Feb 11 2009

Big Numbers to Chew On

Some folks, like the bankers the Trib's Greg Burns quoted today, are saying that a trillion is so big no one can grasp what the bailout and stimulus numbers really mean. A trillion is a big number, but it's not impossible to understand. It's a thousand billions, or a million millions. You know what a million is, right? It's more than you probably make, and more than you probably have.

But this daunting figure is so large only because the U.S. is a big country of over 300 million people. Anything we do on a national scale is now, by definition, a big number. Break it down by population, and a trillion is easier to understand. And since this is money that ultimately comes mainly from you and me, let's break it down by taxpayer.

Approximately 140 million individual income tax-return-filing households provide about three-fourths of the general revenue of the federal government, with corporate income tax also providing about one-fourth (I'll ignore here excise and estate taxes, less than 5 percent total). If you take three-fourths of a trillion and divide it by those 140 million households, it's a little over $5,400 each. Even assuming the number of individual taxpayers will grow -- no sure thing -- it's safe to say that each time the government tosses a trillion around, you, Mr. or Mrs. Average Taxpayer, are getting saddled with another $5,000 in debt, and since about one of five households pays no income tax, it's really more like $6,000 if you are one of those tax filers who actually pays taxes during the year. And that $6,000 will have interest added until it's repaid.

There were roughly 2.5 million corporate tax returns in the country as of 2007, about one corporation for every 50 taxpaying households, and a massive sampling in 2007 showed that two-thirds of corporations pay no income tax.

So, ballpark, about 830,000 companies pay about one-fourth of federal tax revenues. Assuming they'll pay for these trillions at about the same ratio, those taxpaying corporations are getting socked with around $300,000 each, every time another trillion is spent.

The various financial bailouts are already estimated to have cost over $4.3 trillion -- in constant dollars, more than the combined cost of WWII, the Vietnam War, and putting a man on the moon.

When the $800B stimulus plan and the next financial trillion (yes, there's another one coming, whether it's the "bad bank" or some other contraption) are added in, the federal government, in less than six months, will have saddled every individual American taxpayer household with about $30,000 in debt. You can think of that as a new car, or compare it to the median 2007 adjusted gross income of $32,000.

Meanwhile, every taxpaying corporation can look forward to paying about $1.8 million for the bailouts and stimulus to date. Think that might affect business?

All this is on top of what we all collectively owe, through governments, on pre-existing federal, state, and local debt. Some of that is, of course, owed to ourselves, since we buy savings bonds and T-bills and keep our money in funds and money markets that buy treasury securities and state and municipal bonds. But it's added a lot in a hurry. And, fundamentally, we're trying to pay for problems created by borrowing -- with more borrowing.

So don't be "boggled" by numbers that at first glance your eyes glaze over. If you are an average taxpayer, every time some talking head says another trillion is being spent, just bring it down to street level, and say, "that's another six grand from my future earnings."

You'll sound like an expert in no time.

Good Luck / February 12, 2009 8:49 AM

Jeff,

You really get it.

Take that $6,000, though, and then finance it for ten years (at the very least) and then it becomes even more of a loss.

What is ever sadder is that the economy was showing signs of recovery until the bill was agreed to and Geithner unveiled his "I'm in over my head" plan. Now we are likely to see recovery held off for the time being while businesses feel their way thru this new world.

Jeff Smith / February 12, 2009 9:38 AM

Don't get me wrong, I'm mainly trying to put the numbers in perspective. I'm not saying some stimulus wasn't needed. Based on all I've read as well as the retailers, real estate brokers, and manufacturers I talk to, I disagree strongly that the economy was showing any signs of a recovery; if anything, I think our politicians have been less than candid, or less than understanding, for quite some time about the magnitude of what we're facing.

The stimulus plan is dwarfed by the financial bailouts, which are simultaneously huge yet quite likely insufficient to save a rotting system that is variously described as "insolvent" or "zombie." Few in leadership or the media, other than some Paul Reveres in the financial press and blogosphere, are talking about the round of re-set driven foreclosures coming in 2009, or the still-unaddressed credit default swap problem.

My principal objections to the stimulus plan are that we are filling sandbags when what's needed is to acknowledge the extent of the flood plain, and move people away from the river. Also, Obama campaigned on a need for infrastructure and a green economy, and not enough of the stimulus package targets this (while making it more difficult politically to enact, further down the road). We need to get more money into the bottom and middle of the economy, fast, but we shouldn't let the short-term exigencies prevent us from addressing what needs to be done long-term.

Good Luck / February 12, 2009 10:51 AM

Based on all the journalism out there, you shouldn't bother. They know that they don't know shit about shit. I remember talking to a guy who headed up financial reporting for one of the main new services and he admitted that their reporting was basic herd mentality and that the real analysts were only a couple years out of school. There are a few journalists that understand economics and markets but most just fell into their positions. If they know what they are talking about, they charge for it.

Politicians being less than candid? Of course they are, because they have no idea what is going on. Did you see the banking commitee yesterday? It was one part finance 101 and two parts grandstanding 603.

As for good signs, the commodities markets had reached bottom and had started to climb - important indicator, since this signals industries are ordering raw materials. Jobs tend to follow.

Retailers and real estate brokers are not good barometers of overall economic health, especially in the aftermath of an "easy money" era. At one point, I think I knew about 5 or 6 people who had gotten their real estate license as a moonlighting gig. Contraction in those industries are necessary.

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