Share this story
Close X
Switch to Desktop Site

Revised tax-cut aim: consumer spending

''Paradox'' is a good word to describe what emerges when one gropes through the maze of figures embedded in last year's tax cut and this year's tax-increase bill, now before Congress.

Administration officials who claimed President Reagan's three-year tax-cut program would be a bonanza for savings now hope fervently that Americans will spend the extra money they find in their pay packets this year.

About these ads

Without healthy consumer spending, experts agree, the recession-mired economy has little hope of breaking out into even a mild recovery.

Elements that traditionally lead the economy into boom times -- notably housing and capital spending by business -- simply are not there.

Both are hobbled by interest rates which, though declining, still are too high to encourage either home sales or business investment.

How much extra money will Americans have to spend (or save) because of the 10 percent tax cut that went into effect July 1?

Very little, according to the Internal Revenue Service (IRS). It will range from a few cents a week to a maximum of $13 a week, under the new withholding schedule.

Americans on social security get an average $27 more a month, following the 7 .4 percent boost in benefits effective July 1.

When these two sources of extra income are lumped together, consumer spending looks like a weak reed on which to pin hopes for a robust recovery.

About these ads

Most families, in fact, with income up to about $40,000 will find their total tax bill higher this year than last, according to government figures.

The US Treasury expects to collect about $25 billion more in taxes from individual Americans in fiscal 1982 than it did the year before, says Joseph J. Minarik, a senior tax analyst with the Congressional Budget Office (CB0).

Of this amount, about $11 billion will come from bracket creep and most of the rest from higher social security taxes.

What, then, did President Reagan mean in his Monday evening TV address, when he said: ''Right now, the tax reduction that we passed last year is saving the average family about $400 per year. Next year, even after this new tax bill is passed, the savings will almost double -- $788.''

He did not mean that the average family would find that much extra money in its collective purse, though his words might be so construed. He meant that a family's taxes would have been that much higher, if Congress had not passed his three-year tax-cut program last year.

Putting all this together, Americans can draw the following conclusions:

* Consumer spending will bear the major burden of trying to lift the depressed economy toward sustained recovery.

* Individual tax savings, if spent, are likely to spur retail sales, but may have little effect on sales of durables.

* Most families, despite July's 10 percent tax cut, will find their overall tax payments higher, not lower, this year.

Follow Stories Like This
Get the Monitor stories you care about delivered to your inbox.