(Since the seat is level or slopes slightly upward from back to front then the pivot point is at the back of the base of the seat. Since the legs are sitting on - i.e. above - the seat, then the knees have to be above the pivot point and reclining does indeed remove leg space.)
Disclaimer: I'm over 6' with long femurs and have had exactly this situation happen to me on a flight. When the person in front of me reclines my legs do not fit in the remaining space, even if I'm sitting all the way back in my seat.
I understand the economic rationale airlines have for separate seat classes, but at the same time that rationale irritates me because I end up having to pay more for something that is entirely out of my control (genetics).
But a normal "feet on ground" sitting position doesn't work if someone infront of me reclines their seat.
If your bag is taking up all of that space, you are doing it wrong.
On the other side, I don't recline the seat to create more space for myself. I recline it to alleviate discomfort from the absurdly upright default seat position.