A family budget is often invoked in U.S. debt fights. Just how similar is it to a federal budget?

In their debt ceiling negotiations with President Joe Biden, Republican leaders have called for budget cuts and framed their efforts in a way most Americans would understand: as kitchen-table family budgeting. 

House Speaker Kevin McCarthy, R-Calif. — who passed legislation through the House that would raise the debt limit and cap future federal spending — used the analogy at a May 11 news conference.

"We want to go back to what we were spending five months ago," McCarthy said. "People across the country elect their representatives. What we do is, once we set the baseline, we go forward and we decide, Republicans and Democrats, what our priorities (are). It's the exact same thing that every single American family does."

McCarthy has a point that there are similarities between government budgeting and family budgeting. But experts agree that it’s not "the exact same thing," citing crucial differences that undercut the analogy’s usefulness.

"It’s an overly simplistic talking point," said Steve Ellis, president of the nonprofit Taxpayers for Common Sense.

Here’s why.

In the long term, both governments and families can face consequences if their expenses are far out of whack with their income.

"The basic notion that you have to live within your means is true for both," said Douglas Holtz-Eakin, president of the center-right American Action Forum.

The United States’ publicly held debt is currently 97% of gross domestic product, a figure that represents the size of the entire U.S. economy. By 2032, the nonpartisan Congressional Budget Office projects that the figure will rise to nearly 115%. 

Unchecked, that will require ballooning interest payments that will crowd out money for other needs.

"For the U.S., the budget is on an unsustainable trajectory and needs to have course correction to stay within our means," Holtz-Eakin said.

Several important distinctions make governments and families unalike, however. 

• Government budgeting is infinitely more complex than family budgeting. Getting a majority of members in the House and Senate, the president, executive branch agencies and countless interest groups in line is far harder than wrangling Mom and Dad into a breakfast table consensus.

"This is me as a former director of the Congressional Budget Office speaking, but I’m sick of hearing people compare the federal budgeting process to a family sitting around the kitchen table," Holtz-Eakin said. The government is "nothing like a family. It’s very complicated." 

• Governments are more powerful than families. Governments, unlike families, can raise taxes, sell bonds and print money. And governments are essentially eternal, so the bill never really comes due. 

That’s why borrowing 100% of GDP, as is essentially the case today, is sustainable for a country as large and prosperous as the U.S. A family borrowing 100% of its net worth would not be so secure financially.

• Governments have wider responsibilities than families do. "The government has the responsibility to support the economy," said Dean Baker, co-founder of the liberal Center for Economic and Policy Research. "That means when we had an event like the Great Recession or the (COVID-19) pandemic, the government had the responsibility for trying to boost the economy back to full employment, and to ensure that families stayed reasonably whole through the downturn. This pretty much by definition means running large deficits."

• The analogy ignores differences among families. There are many types of families, each with its own financial imperatives and realities. "Some accumulate debt, some live hand to mouth, and some accumulate savings," Ellis said.

Even among families of modest means, "some have young breadwinners and feel comfortable spending more than they earn, based on the reasonable expectation their earnings would be higher in the future," said Gary Burtless, an economist with the Brookings Institution, a think tank in Washington, D.C. "Some are experiencing temporary hardship and were forced to spend more than their current incomes in order to stay in their homes, feed and clothe their children or pay their taxes and transportation bills."

Often lost in the analogy is that most families don’t simply pay off their debts every month. Setting aside long-term debts such as home mortgages, student debts and car loans, most American families carry a balance on their credit cards.

"There is absolutely no requirement, legal or otherwise, that U.S. families ensure that their incomes are equal to or greater than their expenditures in every single year, or even within a 10-year or 20-year time horizon," Burtless said. "If such a legal requirement existed, millions of U.S. families would be breaking the law."

Overall, 84% of American adults have at least one credit card. Even majorities of people earning less than $25,000 and people without a high school diploma have a credit card, Federal Reserve data shows.

All told, there are more than 500 million credit cards in circulation in the U.S., a number that has risen over the past year, according to the credit bureau TransUnion.

The credit bureau Experian has found that half of American adults have at least two credit cards and 13% have at least five cards.

And Americans aren’t simply paying off their credit card balances every month, according to the American Bankers Association. About 56% of Americans carry a balance every month, compared with about 44% who pay off their balance monthly, the association found.

On average, these balances measure in the thousands of dollars: The average credit card holder is carrying a balance exceeding $5,000, TransUnion found. 

Forty percent of Americans with credit card debt told pollsters in 2021 that they hadn’t been debt-free for at least three years, and 15% said they had carried a balance since at least 2006. About 18% reported having credit card debt north of $20,000.

Meanwhile, credit card debt accounts for just a fraction of all the debt Americans currently owe. Data from the Federal Reserve Bank of New York shows that the biggest source of debt for Americans comes from a mortgage, followed by student loans and auto loans. Credit card debt ranks fourth.

In other words, painting the government as wickedly profligate and families as saintedly frugal is deeply flawed.

The comparison "reminds everyone that we have to be respectful of limits of government," Holtz-Eakin said. "But in the nuts-and-bolts details, the two are very different."