How the Other 47% Lives

April 25, 2016
Posted by Jay Livingston

Remember the 47% – those Americans whose income was so low that they were not required to pay any income tax? Mitt Romney talked about them four years ago when he was running for president. They are generally a concern among conservatives, who have identified them variously as “dependent,” “irresponsible,” “takers,” “lucky duckies,” and probably other unflattering names. 

That number, 47%,  cropped up again about a year ago when the Federal Reserve issued the results of a survey on household economic well-being (here). The Fed asked people what they would do if faced with an unexpected emergency costing $400. Only 53% of Americans said that they had enough cash hand or that they could pay it off on their next month’s credit card bill. The other 47% would have to sell something or go into debt. And some said that they would just be unable to find the money.

The Fed’s question is hardly hypothetical. Nearly a quarter of the households reported at least one financial hardship in the past year. Medical and job setbacks accounted for over half of these.

(Click on an image for a larger view.)

The Fed survey found that even among people earning $40,000 - $100,000, only slightly more than half (56%) could deal with a $400 crisis with either cash on hand or one-month credit card debt. Those with lower incomes, especially Blacks and Hispanics, fare even worse. Only 23% and 31% respectively could handle a $400 setback.

It’s possible that Obamacare will reduce the financial burden of medical emergencies. The survey was done in 2014 before the full effects of Obamacare were felt. Still, even among those with insurance and incomes in the middle category reported foregoing some medical treatment because they couldn’t afford it.

There’s a quote I’ve come across a few times in discussions about these kinds of uncertainties. “I’m just one illness, or one job, or one divorce away from poverty.” I’m not sure who said it – probably many people. The point is that it’s not only the poor whose economic position is precarious.  Middle-class people may just be less likely to admit it. Financial worry and need can be matters of shame, especially for those who seem to be solidly middle class. It’s not something anyone wants to talk about frankly.

Neal Gabler comes out of the financial-fear closet in a recent article in The Atlantic. I remember seeing Gabler on TV in the 1980s as half of the team that replaced Siskel and Ebert chatting about new movies on PBS. I figured he was doing all right. But no. He has not been living extravagantly, but with an income at about the US median, he too has to struggle.

I know what it is like to have liens slapped on me and to have my bank account levied by creditors. I know what it is like to be down to my last $5—literally—while I wait for a paycheck to arrive, and I know what it is like to subsist for days on a diet of eggs. I know what it is like to dread going to the mailbox, because there will always be new bills to pay but seldom a check with which to pay them. I know what it is like to have to tell my daughter that I didn’t know if I would be able to pay for her wedding; it all depended on whether something good happened. And I know what it is like to have to borrow money from my adult daughters because my wife and I ran out of heating oil.

Gabler has social capital (friends, family), and perhaps cultural capital, that he can, in an emergency, convert to financial capital. Most of the others in the 47% are not so lucky.

 UPDATE, April26:  Scott Winship has a critique of Gabler’s article and of the Fed data.  His article is online at National Review (here). Winship is the Walter B. Wriston fellow at the Manhattan Institute, a right-wing think tank (Walter Wriston was the CEO of Citicorp from 1967 to 1984), and he scoffs at the notion that nearly half of us would be hard pressed to deal with a $400 setback. He parses the language of the Fed’s questionnaire (saying how you would cover the $400 is not the same as saying whether you could cover it). And besides, lots of people don’t save that $400 because of the multitude of people and institutions they have at their back:

“various forms of private insurance, a more general insurance system is constituted by 401(k) loans and distributions, home equity, credit cards, the public safety net and social insurance, bankruptcy courts, legally mandated emergency-room care, marriage, family, and friends.”

No right-wing critique of the economic hardship (and according to Winship the hardship isn’t really that hard or widespread) would be complete without reference to individual virtue, and Winship comes through for the team:

“If too few people have $400 in emergency funds, it might mean that the economy is doing poorly by them. But it might also mean that too few of us have internalized the virtue of thrift.”

He also hints that in his heart of hearts he believes that the impact of the economy on individuals is less important than the impact of individual virtue on the economy.

“We should want to both promote responsible choices and have an effective economy; we cannot simply presume that more economic growth would promote thrift. The reverse could very well be true.”