Incomes Plunge 0.9% in April; Tax Bite Cited

After-tax incomes fell 0.9% in April, the sharpest setback in a year, as tax filings took a big bite out of Americans’ disposable income, the government reported today.

The Commerce Department said it was the first decline in disposable income since a 0.6% drop last November and the biggest decrease since a 2.5% decline in April, 1987, when changes prompted by the new tax law took an even bigger bite out of Americans’ incomes.

Facing big tax bills, Americans cut back on spending last month as well. Personal consumption spending was basically flat in April after a 0.8% rise in March.

Before adjusting for taxes, personal income rose a weak 0.1% in April after a 1.1% jump in March. This performance was substantially below economists’ expectations.

0.6% Gain Expected

Many of them had been looking for a gain of about 0.6% based on the strong employment increase in April which pushed the jobless rate down to a 14-year low of 5.4%.

The big decline in disposable incomes pushed Americans’ savings rate, savings as a percentage of disposable income, down to 3.8% last month, compared to a rate of 4.7% in March.

The report said personal tax payments climbed at an annual rate of $36.2 billion in April, contrasted with a March increase of $10.9 billion. Most of that gain came in payments taxpayers had to make when they filed their returns before the April 15 deadline.

Wages and salaries rose at an annual rate of $7.9 billion in April, down from a March increase of $15 billion, reflecting primarily the fact that wages were boosted in March by a payment of bonuses to workers at Ford Motor Co.