1983 Survey Shows Tax Cuts Offset Drop in Pretax Income : Average Take-Home Pay Increases

Federal tax cuts have allowed Americans to begin taking home more money, even though their total earnings fell in the 1981-82 recession, the Census Bureau reported Thursday.

“The federal tax cut put more income into the hands of Americans to spend,” said John Coter, head of the Census income statistics branch, in explaining the findings of a bureau study of after-tax income.

While wages declined between 1980 and 1983 in a recession-plagued economy, take-home pay went up, according to the bureau’s study “After-Tax Money Income Estimates of Households: 1983.”

Total income, before taxes, averaged $25,401 in 1983, down from $25,467 in 1980, the study said.

But the amount left for spending after taxes went up during the same period to $20,001 from $19,674 for the average household, Coter explained.

The figures for 1983 are the most recent that are available. Coter said preliminary figures for 1984 will be compiled later this summer, but they will not be as detailed as this report. In addition, Coter pointed out, between 1982 and 1983 both pretax and after-tax income increased, the first growth in pretax income since 1980.

While the improving economy has helped spur rising incomes, the federal tax cuts have been the major influence, said Gordon Green of the Census Bureau.

But, he noted, income hasn’t increased by as much as taxes were cut, for several reasons.

Rising state and local taxes and the movement of some families into higher tax brackets helped limit their income growth, Green said. Between 1982 and 1983, for example, federal income taxes were cut 10%. In that period, pretax income grew 1.2% and after-tax income rose by 2.4%, he said.

Survey of 60,000 People

The Census Bureau began estimating after-tax income in 1980 as a method of reporting the actual spending power of Americans.

The after-tax income report is based on a March survey of about 60,000 persons, combined with data from the annual American Housing Survey and the Internal Revenue Service.

The study released Thursday concentrates on income changes between 1982 and 1983. Among the findings were:

- After-tax income rose 2.4% to $20,751 for the average white household. For black households, it was up 2.1% to $13,673 and, for Hispanic households, was up 1.9% to $16,076.

- The largest gain was in the Northeast, where household income rose 3.9% to $20,205. The rise was 2.5% in the West to $21,153 and also 2.5% in the South to $19,474. Household income in the Midwest edged up only 0.9% to $19,558.

- Family households had an income rise of 2.6% to $22,694. Households headed by a woman with children but no husband present gained only 0.6% to $11,236. Non-family households saw a 3.1% gain to $12,870.

- The number of households with incomes of $50,000 or more was 8.8 million before taxes and 3.2 million afterward.

- Some 92% of all households paid at least one of the four largest taxes. The federal income tax affected 75.4% of households, closely followed by Social Security at 74.2%. In addition, 62.7% of households paid state income taxes and 60.7% paid property taxes on their home.

- The average amount of taxes paid in 1983 was $5,889, down $166 from the year before. Federal income taxes paid were down $311, the study said. Property taxes also fell slightly, but state income taxes and Social Security went up.