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After-Tax Incomes Drop Sharply Despite Modest Overall Rise

May 27, 1987|Associated Press

WASHINGTON — Americans dipped into savings last month to pay hefty tax bills as their after-tax incomes recorded the sharpest drop in 12 years, the government reported Tuesday.

The Commerce Department said that after-tax incomes slumped 2.4% in April while the personal savings rate fell to an all-time low of 0.1%.

Normally, such big income and savings declines would spur fears of a possible recession as overextended consumers cut back on purchases. But analysts maintained the weakness in April overstated the problems facing the economy. They said these figures primarily reflected temporary effects from the new tax law.

Before adjusting for taxes, incomes showed a modest increase of 0.3% in April while consumer spending climbed 0.6 % during the month, the government said.

Analysts said both of those figures supported their belief that consumer spending, which accounts for two-thirds of overall economic activity, was not in danger of collapsing.

"Consumer spending should be enough to keep the economy slogging along and keep us out of a recession," said David Wyss, an economist with Data Resources Inc., of Lexington, Mass.

The drop in after-tax, or disposable incomes, was attributed to big tax bills facing Americans on April 15. The Commerce Department estimated that personal tax payments increased at an annual rate of $85.5 billion that month.

Analysts said the higher-than-normal tax payments occurred because Americans sold assets at the end of last year in order to take advantage of lower tax rates for capital gains under the old tax law. Those year-end sales meant higher 1986 tax liabilities.

The big tax bills required Americans to dip into their savings during the month. The savings rate--savings as a percentage of disposable income--fell to a record low of 0.1 %, down from 3.2% in March.

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