Putting $6 Trillion “Stimulus” in Perspective

The most recent COVID relief bill was signed by President Biden yesterday. In one year’s time our government (two different administrations) has passed about $6 trillion worth of stimulus. We’re so used to “trillions” being thrown around I believe we’ve become numb to the mind-blowing magnitude of it all so I’ll try to put it in perspective:

  • $6,000,000,000,000 (that’s twelve zeros) divided by a population of 330 million is about $18,000 for every man, woman and child.
  • The average household is about 2.5 people (130 million households) so $6 trillion of stimulus is about $46,000 for every household on average. For our family of five, it’s about $90,000 (no, we didn’t get any of that).

Sidenote: I did a quick poll on Twitter asking how people planned to use the majority of their stimulus checks. 54% said “Pay Down Debt,” 26% said “Saving / Investment,” 11% said “Dining and Consumer Goods,” and 9% said “Travel.”

Who’s on the hook (back of the napkin math)?

Using 2018 data provided by the National Taxpayers Union Foundation

To be in the top 1% of income earners you had to have an adjusted gross income of about $540,000+. That segment paid 40% of all income taxes.

With income between about $218,000 and $540,000 you’d fall in the next 4% of income earners and paid about 20% of all income taxes, which is where the majority of my non-retired clients fall.

In other words, folks in that segment are *very roughly* on the hook for about $1.2 trillion (20%) of the $6 trillion in stimulus. 4% of 130 million households is 5.2 million so dividing $1.2 trillion by 5.2 million means that each household in that segment is *very roughly* responsible for $231,000 of the stimulus passed over the last year!

The same analysis of the national debt (call it $30 trillion) reveals that same segment of income earners is on the hook for about $1.15 million…that’s EACH household in addition to their own private debt!

Obviously, this is far from a precise analysis, but it does help to put all this federal spending in a more realistic perspective. The money isn’t free…it must come from somewhere. These are merely transfers from one group to another. Government has no money of it’s own…only that which it collects from its citizens. Of course, unless it simply prints the money in which case everybody’s savings and incomes are devalued, which hurts the lowest income earners the hardest.

The point here is not to make a judgement on the policies but to simply put color on everything that’s taking place and illustrate the magnitude of the cost side of the equation as well.

Another implication is that at some point in the future, the tax base will likely be widened. It’s simply not possible to pay even a small portion of our debts by taxing just half the population. Of course, the first changes will be to increase the rates on higher income earners, but ultimately that will have to creep down into the lower brackets as well and / or require major spending and benefits reductions. The math simply doesn’t work otherwise. Our liabilities have become too massive. Also consider that the $30 trillion national debt doesn’t include any of the future promises we’ve already made that amounts to tens of trillions (if not hundreds of trillions) more.

Obviously, the government is not funding these stimulus programs through immediate taxation but by borrowing the funds to be paid back via tax revenues over time. That leads us down another rabbit hole so I’ll save that discussion for another day. However, I will leave you with this thought -> The Federal Reserve is currently buying $120 billion of bonds each month. There are about 2,630,000 seconds in a month. Therefore, the Fed is buying over $45,000 worth of bonds every single second of every single day. For perspective, the median income in the U.S. is about $35,000. (h/t @RudyHavenstein)