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Momonomics 101: How We Pay for Bailouts and Bombs

September 18, 2008 •  no comments.

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As campaign rhetoric swirls over tax policies, this article is the first in a series called Momonomics aimed at helping moms understand all of this economic jargon. I am honored to serve on the advisory board of a nonpartisan campaign called Show of Hands, Our Children Our Future, whose goal is to inspire moms to vote so that we can ensure environmental and health security for our children.

I am fortunate to have learned economic policy, having earned an MBA on a scholarship and worked as an equity analyst pre-diaper duty. Since I learned it myself, I am confident that you can learn it, too. And I promise, it won’t be as boring as that Econ 101 class that you were inclined to skip as an undergrad!

So let’s talk taxes, so that we can understand what our presidential candidates are saying about our economy.

In the US, we pay taxes so that the government has money to do its job. Taxes are collected by our government in order to pay for the services that we need (schools, roads, military, etc).

If the government doesn’t collect enough in taxes from all of us (called taxpayer revenue), then they make up for the difference by borrowing money (taxpayer debt).

Anyone that owns a house is familiar with this logic already. To buy a house, we pay for part of it up front in cash, and then we borrow and pay interest on the rest (the mortgage) with an obligation to pay it off later.

In the last eight years, rather than collect more money from all of us up front, in the form of taxes, the government has been borrowing money to pay for the services that we need. Both sides of the aisle have done it. As a matter of fact, the Congressional Budget Office just announced that this year alone, we’ve borrowed $246 billion.

Do you know how much $246 billion is? If you were to count one billion seconds (not 246 billion, but just one billion), it would take you 31.7 years of continuous counting. To get to two billion, would take 63.4 years, to get to three billion…well, you probably wouldn’t live that long. So you wouldn’t stand a chance of counting up to 246 billion. And that’s how much we’ve borrowed this year alone.

And like the loan you took out to pay for your house (your mortgage), we owe interest on this $246 billion loan.

Now add that new loan on top of what we have already borrowed as a country – which is almost ten trillion dollars. A $10 trillion loan! Do you know how much $10 trillion is? Let’s count seconds again like we did with one billion (it took 31.7, years remember?). Well, we have not been alive for even one trillion seconds. As a matter of fact, our Western civilization has not been around for a trillion seconds. One trillion seconds is 31,688 years. A trillion seconds ago, Neanderthals stalked the earth.

However, since we have borrowed almost $10 trillion, then as taxpayers, we now have a debt of almost ten trillion dollars. Ten times the length of civilization. Pretty huge, huh?! .

Our debt is so big that, by law, we’re about to hit our spending limit. We’re about to max out the limit on our national “credit card”. But rather than reduce spending, Congress (yep, Republicans and Democrats) just passed a bill increasing our new limit to $10.6 trillion, allowing us to borrow even more.

Sounds good, right? But guess who has to pay that off? We do, all of us, as American taxpayers. We have been signed up for this ten trillion dollar national debt and the interest due on it, without our informed consent. It doesn’t matter who wins the presidency, Welcome, Mr. (or Mrs.?) President, Here’s the Tab

For the last several years, rather than ask us for our money directly in the form of taxes or for our permission to spend $246 billion this year alone, our government continued to borrow money from Social Security and governments around the world to pay for things like our military, drilling, bank bailouts, roads and schools. While they held true to their promise of not raising taxes, they increased our debt at an unprecedented rate. And by law, we are obligated to pay this debt off, as taxpayers, in the form of future taxes.

So who do we have to pay back?

We have borrowed huge amounts of money from places like China, Russia and the Saudis. And when we borrow their money, not only do we promise to pay them back, but we also agree to pay them interest on these loans. So, for the last eight years, our taxes have helped fund foreign governments through these interest payments. Our tax dollars have been going straight to places like China, Russia and the Saudis. Boy, I wish I had known that, don’t you?

We have also taken money from Social Security. We have borrowed so much money from Social Security that the system itself is now at risk. And by law, we are also obligated to pay that back or run the risk of bankrupting Social Security entirely.

So what’s a mom to do?

We can continue to borrow at this record pace, maxing out our national “credit card”, rewriting the laws as we continue to exceed borrowing limits – in turn weakening Social Security and strengthening foreign governments with the interest payments that we continue to send their way.

Or, we can all do our part and begin to conserve, placing less of a strain on our system here at home. You know how you cut back on things at home when the budget gets a little tight? Same logic here….

We can pay off our credit cards, so that we don’t have to spend our taxpayer money on more bank bailouts. We can reduce our energy consumption, turn off the lights and the faucets, carpool to school, or set the thermostat a little higher in order to conserve oil, gas and other natural resources so that we don’t have to spend our taxpayer money on more drilling.

As a matter of fact, the amount of money that we are sending to foreign nations in exchange for their oil is soaring. At current oil prices, we will send $700 billion out of this country in this year alone. If you project that out over the next ten years, the cost will be $10 trillion dollars (remember those Neanderthals?), representing the greatest transfer of wealth (from the US to the oil countries!) in the history of mankind.

And instead of buying a new TV, we can pay down our mortgages so that we don’t have to spend more of our taxpayer money bailing out the organizations (Freddie Mac and Fannie Mae) who own these mortgages.

If we all took these baby steps together, imagine the giant leap we would make as a country? It would help reduce the burden on our already strained system and our need to borrow ever increasing amounts from foreign countries. Not only would this reduce our taxpayer debt, but it would eventually enable us to keep more of our taxpayer dollars in the US, strengthening our government here at home.

To me, that sounds like Homeland Security. So how does that carpool sound?