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No, Budgets Aren't Like Family Finances. But the Analogy Is Telling About the Fiscal Debate. No, Budgets Aren't Like Family Finances. But the Analogy Is Telling Ab...

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No, Budgets Aren't Like Family Finances. But the Analogy Is Telling About the Fiscal Debate.

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House Budget Committee Chairman Paul Ryan holds up a copy of the 2014 Budget Resolution. (AP Photo/Carolyn Kaster)

When Paul Ryan unveiled the Republican budget this week, he leaned on a familiar analogy: the household budget. In pushing the goal of balancing the federal budget within 10 years, the House member from Wisconsin said families across the country must make sure that they live within their means, and government should do the same. 

"That's the basic acknowledgment when you're budgeting—just like families and businesses do—that you cannot continue to kick the can down the road, that you cannot continue to spend money that we just don't have," the chairman of the House Budget Committee said. 

 

It's an imperfect analogy, experts say. The United States has important levers that families do not: It can tax citizens, and it has enormous access to global credit markets, so government can treat debt differently. Still, the comparison is appealing to politicians eager to explain and simplify their budget strategies. And, limited though it may be, putting federal and household budgets side by side reveals the basic philosophical differences between the two parties.

Republicans see the nation’s swelling debt, at $16.7 trillion and counting, as an immediate problem in need of an urgent solution. By 2023, under Ryan’s plan, the government would spend only as much as it brings in. Democrats agree that the debt is on an unsustainable path, but as President Obama put it in an interview that aired Wednesday, "We don’t have an immediate crisis." The Democratic vision for the federal budget, to be trotted out in the Senate Democratic budget proposal Wednesday and in the White House budget in the coming weeks, is likely to treat spending less as a burden and more as an investment in the future.

That’s not unfamiliar territory to many families, said Linda Leitz, a certified financial planner and the incoming head of the National Association of Personal Financial Advisors. Imagine a poor student and her family borrowing for her college education. It may seem like a bad idea in the short term. But it could yield positive results in the long term: “Being able to then have an income that no one in my family has ever had because I invested in my education and I now have career skills makes a whole lot of sense,” she said.

 

But it has to be done smartly. "Am I going $50,000 into debt for a business degree ... or am I going $100,000 into debt for an art-history undergraduate degree?" Some reasons to take on debt can more directly lead to future gains, she said. Others might not be so easily justified.

Borrowing to invest makes sense, said Eleanor Blayney, consumer advocate for the Certified Financial Planner Board of Standards. You might take on debt to buy a car, but having that car will help you land a job, for example. But what doesn’t make sense is borrowing just to make ends meet. “If we’re borrowing because we cannot pay our bills today, that’s a different matter,” she said.

And that distinction in family budgeting applies to its federal counterpart: Republicans see much government borrowing as the bad kind of debt—just to pay bills—while Democrats see at least some of it as the good kind—an investment in the future.

"We don’t have an immediate crisis in terms of debt," Obama said in the Wednesday interview. "In fact, for the next 10 years, it’s gonna be in a sustainable place. The question is, can we do it smarter, can we do it better?"

 
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