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. (Source: Newsweek, July 20, 2009)
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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