After-Tax Income Takes Deepest Plunge in 12 Years

Americans’ after-tax income plunged 2.4% in April for the steepest monthly decline in 12 years as people dipped into savings to pay off hefty tax bills, the Commerce Department reported today.

Higher-than-normal tax payments this year at the April 15 filing time were blamed for the big drop in after-tax, or disposable, income.

Before taxes were taken into account, Americans’ income rose 0.3% in April following a 0.2% increase in March.

Personal consumption spending climbed a healthy 0.6% in April following a 0.2% increase in March.

The big plunge in disposable income left Americans’ savings rate, savings as a percentage of disposable income, at a record low of 0.1%, down from 3.2% in March.

New Tax Law Blamed

The large April decline in after-tax income followed a tiny 0.1% increase in March. The big drop was attributed to the new tax law, which prompted many people to sell assets prior to Jan. 1 in order to take advantage of expiring capital gains tax treatment. It was the biggest decline in disposable income since a 2.9% plunge in June, 1975.

The 0.6% rise in consumer spending included a $7.2-billion annual increase in the purchase of durable goods, items expected to last three or more years. Spending on durable goods had fallen at an annual rate of $1.5 billion in March. Purchases of non-durable goods rose at an annual rate of $4.7 billion in April, compared to a decline of $100 million in March.

Farmers Payments Cited

The 0.3% rise in before-tax personal income was the best showing since a 1.3% increase in February.

The April income increase was affected by subsidy payments to farmers and by an initial payment to a newly established retirement savings fund for federal government employees. Without these special factors, personal incomes would have risen by a stronger 0.5% last month.

The key wages and salaries component of incomes increased $7.3 billion in April, very close to the $7.1 billion March increase.

Payrolls at manufacturing firms fell by $600 million in April compared to a March decrease of $1 billion.