The Recession's Impact on Higher-Income Families
It's commonly believed that recessions impact lower-income families more than higher-income families. However, a recent study by economists at Northwestern University found that the relative income loss during recessions for the top 10% of the population is 26% greater than the average household, while it is double the average household for the top 1% of the population. It is still probably tougher for the average family to deal with income declines, but the impact on the economy is certainly greater when higher-income families lose income. Consider the following (Source: Newsweek, July 20, 2009):
• A significant portion of consumption spending is made by higher-income families. For instance, in 2009, households with over $200,000 of income represented 3.4% of the number of households, but generated almost 14% of consumer spending. Households with income between $100,000 and $200,000 represented 14% of the number of households and 34% of spending. Combined, these two groups generated almost half of all consumer consumption, while accounting for only a sixth of the total population.
• Higher-income families pay a significant portion of all income taxes. In 2006, taxpayers with the highest 1% of income paid 28% of all federal taxes, while the top 10% paid 55% of all federal taxes.
• A substantial portion of charitable giving is made by higher-income families. In 2004, the top 1.5% of American families based on net worth made approximately 27% of all charitable contributions, while the next 7% made 20% of all contributions. Thus, one tenth of all American families made nearly half of all charitable contributions.
Thus, when higher-income families are faced with a substantial income loss, it can seriously drag down the economy. For instance, from 2007 to 2008, families with income between $150,000 and $250,000 reduced spending by 8%, while families with incomes over $250,000 reduced spending by 15%
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