Don’t believe taxes affect behavior? Tell that to the Bureau of Economic Analysis which just released January income numbers:
Personal income decreased 3.6 percent in January after increasing 2.6 percent in December, reflecting accelerated bonus payments and dividend distributions in December in anticipation of income taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. rate changes.
Current-dollar disposable personal income (DPI), after-tax incomeAfter-tax income is the net amount of income available to invest, save, or consume after federal, state, and withholding taxes have been applied—your disposable income. Companies and, to a lesser extent, individuals, make economic decisions in light of how they can best maximize their earnings. , decreased 4.0 percent in January after increasing 2.7 percent in December.
As First Trust notes, this is the biggest drop in personal income since Bill Clinton raised income taxes in 1993 (see the history of rates chart below):
Personal income fell in January by the most in twenty years, but this is no big surprise. Back in December 1992, personal income jumped 3.4% in anticipation of higher tax rates under President Clinton. There was a huge payback the following month as personal income fell 3.7%. The same thing happened in the last two reports. In anticipation of higher tax rates on both regular income and dividends, personal income surged 2.6% in December and then dropped 3.6% in January. In particular, dividends surged 33% in December and then dropped 35% in January. Private wages and salaries declined 0.8% in January after surging 0.9% in December, as some firms paid normal January bonuses one month early.
For more on how capital gains taxA capital gains tax is levied on the profit made from selling an asset and is often in addition to corporate income taxes, frequently resulting in double taxation. These taxes create a bias against saving, leading to a lower level of national income by encouraging present consumption over investment. increases fail to raise additional tax revenue, see our recent report.
Follow William McBride on Twitter @EconoWill
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