Wednesday, May 25, 2005

Income and Savings Oddity

by Tom Bozzo

The measured personal savings rate is somewhat famously low, but is also perhaps not very well measured in some respects. One not-new methodology issue, raised in this San Francisco Fed brief on the savings rate decline, is that a late-90s revision to the National Income and Product Accounts (NIPA) changed the treatment of capital gains distributions by mutual funds from personal income to corporate profits. This has a noticeable effect on measured savings in periods in which such distributions are large, such as periods of rising stock prices. (About 1.5 percentage points from 1995-1997.)

Seeing as such a distribution would be treated as my personal income (possibly deferred) for income tax purposes, and moreover the proceeds of such a distribution would be very income-like otherwise, my imagination is overtaxed as to why the NIPA treatment is reasonable.
The change makes sense in the context of DPI.

The question is why DPI excludes "income from interest and dividends."

Speaking as one who wasn't eligible for the EITC a couple of years ago--it was a bad year--solely due to dividend income, I find it hard to believe such monies are not considered "disposable."
I think that's a problem of bad wording, if you're referring to the location of "less" in the SF Fed document's description of DPI. The table on page 6 of the old NIPA guide clarifies that they're just subtracting social insurance contributions off transfer payments.

To perhaps focus my question in light of your comment, since I could, in principle, take the distribution in cash and do with the after-tax portion as I please, it looks disposable from my micro perspective. A capital consumption offset, which had crossed my mind, can't be the case if they're taking a positive figure and shifting it from one account to another.
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