One of the tenets of supply-side economics was partially undermined yesterday when the Commerce Department announced revisions in personal income statistics stretching back to 1977.
The changes wipe out part of the sharp declines in the personal saving rate, expressed as a percentage of disposable personal income, that appeared in government statistics beginning in 1977. Supply siders blamed rising marginal income tax rates for the reported drop in saving, and they urged cuts in marginal rates to encourage more saving, work effort and investment. The Reagan administration fully adopted that view, and Congress went along by passing last year's large tax cuts.
The new figures, which include revisions through last April, show the personal saving rate averaged 6 percent over the last five years rather than the 5.4 percent previously reported. The 5.2 percent rate previously estimated for 1978 and 1979--the lowest of the postwar period save 1947--was revised upward to 6.1 and 5.9 percent, respectively.
In the 1950s, the saving rate averaged 6.8 percent, dropped to 6.6 percent in the 1960s and, with the revisions, rose again to 7.3 percent in the 1970s. The rate is now estimated at 5.8 percent for 1980 and at 6.4 percent for 1981. In the first half of 1982, the rate, which normally rises during recessions, averaged 6.6 percent.
Meanwhile, the department also reported that personal income for June rose a weak 0.3 percent, or at an $8.7 billion seasonally adjusted annual rate, to $2.561 trillion. Personal outlays dropped one-half percent to $2.013 trillion.
The figures confirmed other indications that the economy continued to slump in June, analysts said.
The largest gain in incomes came from a $3.8 billion rate of increase in personal interest income. Wages and salaries were up at a $2.1 billion rate.
One economist noted that the large revisions "illustrate the problem of putting a lot of weight on small changes in a residual," as the supply siders have done. By "residual," he meant that personal income, tax payments and outlays are calculated separately, and the latter two then subtracted from the former to get a figure for saving. Statistically, that means that all of the errors in any of the three numbers affect the residual, the savings number.
Generally, the revisions indicate personal income was higher than previously thought, with the 1981 level revised upward by $11.7 billion to a level of $2.416 trillion. Wages and salary income was boosted by $11.2 billion to $1.494 trillion. The estimate for personal interest income, such as from savings accounts, was increased by $20.5 billion to $329 billion. At the same time, personal tax payments were revised downward slightly.