Since the onset of the 2008 recession, the political landscape has become increasingly riven by resentments grounded in the distribution of income and taxation. Romney's videotaped remarks at a fundraiser in Florida reflected resentments among many wealthy taxpayers that a smaller and smaller percentage of Americans are bearing a burden of citizenship -- paying the federal income tax -- that they believe should be borne more widely. On the other side, the Occupy movement has been largely motivated by the increasing concentration of wealth and income in the United States since 1980, as the income share of the top 1% had more than doubled from 8.9% to 19% of national income by the time of the 2008 collapse.
Over the past several decades, the federal income tax system has become increasingly progressive and the share of total income taxes by wealthier households has grown steadily. During that same timeframe, changes in the structure of social policies -- largely motivated by Republican aversion to traditional social welfare programs -- have resulted in the increased the use of refundable tax credits as a means to ameliorating poverty among the elderly and providing support to poor families with children.
As the public deconstruction of the 47% number showed in the wake of Romney's remarks, half of the 47% of non-tax-payers are the elderly and low income working families with children whose income tax liabilities were offset by such tax credits, while the other half constituted households with aggregate incomes in the mid-$20,000 range or below who had no tax liability due to standard deductions, but who do pay the payroll tax.
Republican strategists were quick to point out the fatuity of Romney's remarks. As the conservative Tax Foundation has noted, the incidence of non-payers is highest in the deep-red states of the old Confederacy, and whether they appear under the guise of Spiro Agnew's silent majority, Reagan Democrats, Pat Buchanan's peasants with pitchforks or Lindsey Graham's angry white guys, lower income and elderly whites have long constituted an important part of the GOP base.
But worse than just stepping on his own base, Romney stood before that group of big ticket donors and affirmed their contempt for a large swath of their fellow citizens. Lost was the notion that the contributions of citizenship are not and should not be just measured in dollars. To put it bluntly, lost was the fact that while lower income families may pay a smaller share of the income tax, they bear the burden of citizenship in a more elemental way: their children serve in the military in a far greater percentage than the children of large political donors and taxpayers. People contribute and people serve their country in myriad ways, and wealth is not an entitlement to arrogance.
This past July, the Congressional Budget Office issued a report that pronounced that "average before-tax income for all households fell 12% from 2007 to 2009." The report data suggested that average American family incomes plummeted in real terms to 1998 levels, and contributed to the post-2008 narrative of America's lost decade.
Like the deconstruction of Romney's 47% number, a closer look at the CBO data suggests a startlingly different picture. Rather than a broad based decline in household incomes across income groups, the data indicates that on average poor families saw no income declines, and 80% of American households were largely insulated from significant income declines .
Specifically, for the poorest families -- those in the lowest quintile of income groups -- real, after-tax incomes actually rose from 2007 to 2009, while for the middle 60% of households, household after-tax incomes declined by 1% to 2% from 2007 to 2009. Accordingly, in contrast to the lost decade narrative, 80% of American households saw their income decline only modestly, if at all, from 2007 to 2009. In contrast to seeing their income set back by a decade, the CBO data suggests that after-tax incomes of the poorest households were unaffected by the financial collapse, while incomes for the middle 60% of American households were only set back to 2006 or 2007 levels.
The 12% aggregate decline in household incomes, it turns out, was largely a product of income declines in the top fifth of households, and even within that top quintile the declines were concentrated at the top. The bottom half of the top quintile -- families in the 81st to 90th percentiles -- saw their incomes decline by 2% and those in the 91st to 95th by 4%. Even the 96th to 99th percentiles just equaled the overall average rate of income decline of 13% from 2007 to 2009.
The bulk of the decline came where the bulk of the income resides -- in the top 1% of households -- that saw an after-tax decline in income of 37%.
This data tells a story that is quite different from the one that made the headlines. Just as Romney's 47% number is not evidence of a massive breakdown of society, the 12% average decline in household incomes in the wake of the 2008 collapse may not actually be the evidence of a widespread collapse in family incomes which has become the generally accepted narrative of the impact of the 2008 recession. The larger issue of the concentration of wealth in America has not gone away, but with respect to the specific impact of the 2008 recession, the underlying data suggests that our counter-cyclical policy systems designed to cushion families from economic adversity -- such as unemployment insurance and the earned income tax credit -- have worked.
The data suggests that the top 5% of households -- and really the top 1% -- have not gotten away scot-free, but rather they have born the brunt of the economic fallout from the 2008 recession, while the middle class and the working class have been insulated to a far greater degree than has been widely recognized.
Maybe they just want someone to say thank you.
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