After-Tax Pay Up at Record Rate of 3.4%
Americans’ after-tax income shot up at a record rate of 3.4% in May as people recovered from a huge tax bite in April that had sent personal savings to an all-time low, the Commerce Department said today.
The picture for pretax income was much gloomier, however, as workers saw their paychecks rise at a seasonally adjusted annual rate of just 0.2%--the feeblest increase in six months.
Consumer spending in May also was weak, up a minuscule 0.1%.
Last month’s 3.4% increase in after-tax pay, or disposable income, is the largest such jump since the Commerce Department began tracking the subject in 1959. But officials quickly pointed out that the figure doesn’t mean that Americans suddenly have more money in their pockets.
More Taxes Than Usual
The 3.4% increase stems almost totally from the fact that Americans paid a larger-than-usual amount of taxes in April, primarily to cover capital gains made last year.
Millions of Americans sold more property and stock than usual last November and December to take advantage of old capital gains tax rates before newer, stiffer rates took effect Jan. 1, the Commerce Department said. The taxes on those deals came due in April.
The agency said millions of other Americans found themselves paying higher taxes than usual in April because the stock market did so well last year, giving them capital gains as well.
Declined 2.7% in April
The flood of payments caused the disposable personal income rate to fall 2.7% in April. People didn’t have to make those same payments again in May, so they had more after-tax cash.
The government said that if one ignores the plunge in April and May’s record rise, the increase in personal income over the two months is much more modest--an annual rate of just 0.6%.
May also marked a modest return to savings habits after Americans salted away an unprecedentedly low 0.1% of their April income.
The savings rate rebounded to 3.3%. That is far higher, but if it holds steady for the whole year it will still mark the lowest savings rate in America since World War II.
