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Commerce Department: Tax cuts, bonuses caused spike in real disposable income for January

President Donald Trump celebrates Congress passing the Tax Cuts and Jobs Act with Republican members of the House and Senate on the South Lawn of the White House Dec. 20, 2017 in Washington, D.C. The tax bill is credited with showing the highest spike in Americans' real disposal income since 2012. (Chip Somodevilla/Getty Images)

The Commerce Department's Bureau of Economic Analysis released a report on Thursday showing the highest spike in Americans' real disposal income since 2012. The report credited the Tax Cuts and Jobs Act signed into law by President Donald Trump in December for the jump.

What did the tax cuts do?

Personal income rose in January by $64.7 billion, a 0.4 percent increase. This increase is the highest seen in five years due largely to the TCJA, which also led to an increase in the personal saving rate to 3.2 percent. The tax reduction measure is estimated to reduce the annual amount paid in personal income taxes by $115.5 billion.

Wages and salaries were also up in January, with a material impact from an additional $30 billion in bonuses paid to employees by businesses. All factors combined resulted in  a 0.9 percent increase in disposable personal income, to the tune of $134.8 billion in Americans' pockets. Earnings adjusted for taxes and inflation saw the highest leap since April of 2015, up 0.6 from December, and nominal income (the amount of income prior to adjustment for inflation) exceeded economists' expected rise of 0.3 percent to 0.4 percent.

Over 100 companies distributed employee bonuses in response to the corporate tax rate dropping to 21 percent from 35 percent under the TCJA, resulting in a marked impact on overall personal income numbers. Other firms like Walmart implemented wage increases or pay hikes for employees as a result of the windfall they received from the tax changes.

The Bureau of Economic Analysis also pointed to factors such as the elimination of the personal exemption deduction, increase in the Child Tax Credit, and doubling of the standard deduction as having an influence on their estimates regarding personal taxes.

What else helped ?

Unemployment claims hit their lowest level since 1969 in the week ending Feb. 24 to 210,000, according to a separate report from the Department of Labor on Thursday, as a continuation of recent trends.

Earlier, Commerce Department numbers also pointed to January showing the highest numbers since 2009 in average hourly earnings.

The Commerce Department's figures reflected a decrease in spending for goods, showing a drop in new motor vehicle sales as the major reason. There was, however, a $4.8 billion increase in spending for services. Personal outlays, or the sum of personal consumption expenditures, personal interest payments and personal current transfer payments also rose $33.7 billion in January.

 

One last thing…
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