A story and table in last Sunday's Business Section understated the level of business saving in 1984 and that expected for 1985. The correct figures, as a percent of the gross national product, are 14.2 percent and 14.6 percent, respectively. Business and personal saving combined is expected to be about 17.5 percent of GNP this year. Also, the correct average for gross private saving for 1981-85 is likely to be 17.4 percent of GNP, a small increase from 1976-80. Total saving, including that by government, is expected to be about 13.7 percent of GNP, the fourth-lowest figure since World War II.
American households and businesses will save a smaller share of their combined incomes this year than they have in any year since 1969.
The government sector, meanwhile, continues to spend and go deeper into debt in a big way. The federal government's budget deficit this calendar year will be about $195 billion, roughly four times the size of the surplus being achieved by state and local governments.
All of the federal tax changes of the last five years -- such as cutting personal income tax rates, allowing anyone with earned income to have an individual retirement account and reducing many business taxes -- appear to have had little impact on the American willingness to set aside part of today's income to invest for tomorrow.
As a result of this dearth of savings, there is relatively less U.S. money available, as a share of the gross national product, to finance investment in new plants, business equipment, inventories and homes than at any time since World War II.
So far, foreign savings are flowing into the United States to make up the shortfall. This new reliance on foreign capital, however, has turned the United States into a debtor nation. A result of this shift is that a growing share of future American income will have to be used to pay interest on foreign debt instead of being available for U.S. consumption or investment.
Many business tax cuts enacted in 1981 also were supposed to create incentives for companies to step up investment. In 1985, four years after passage of the cuts, business investment in new plants and equipment will be about 11.9 percent of GNP, no higher than it was in 1979 or 1981.
The average level of those types of fixed investment by business in the 1981-1985 period has increased to about 11.5 percent of GNP from an 11 percent average for the 1976-1980 years. But that increase is almost matched by a drop in inventory investment, so there is virtually no change in gross business investment.
Investment in new homes has dropped substantially in the last five years to an average of 3.8 percent of GNP from 4.6 percent in the 1976-1980 period. Housing investment in 1985 likely will be about 4.1 percent of GNP.
Thus, whether the figures for 1985 alone or those for the last five years are used, there is little evidence of an increase in investment in the American economy.
Some economists believe that the reason business tax cuts did not give more of a spur to investment was that the high level of interest rates -- compared with expected rates of inflation and with potential profits from, say, a new plant -- discouraged such spending by business.
Whatever their impact on investment, those high real interest rates apparently have not encouraged more saving. There has been a sharp decline in saving by households, which has been exacerbated by a drop in corporate pension plan contributions, analysts say.
In the third quarter, personal saving fell to 2.7 percent of disposable income, its lowest level since the same quarter in 1950, when consumers rushed out to stock up on everything from toilet paper to cars in anticipation that the advent of the Korean war would mean a return to rationing. The rate then was 2.6 percent.
Some analysts believe the personal-saving figures will rise when the Commerce Department's Bureau of Economic Analysis (BEA) completes some major revisions in the GNP accounts late this month. Economist Alan Greenspan said that BEA "has indicated that the . . . revisions . . . will restate upward personal income and personal saving, with comparatively minor restatements for consumer outlays. Thus, the personal saving rate will be revised upward."
In 1980, another comprehensive revision of GNP added about one percentage point to the previously reported savings rate, Greenspan notes.
But raising the savings rate by one percentage point of disposal income would leave it at about 5 percent for 1985, a very low level by historical standards.
Moreover, the problem in personal saving did not arise this year. The average level of savings over the last five years shows no sign of any increase relative to the size of the economy, as proponents of the 1981 tax cuts expected. For instance, in the spring of 1981, Treasury Secretary Donald T. Regan projected that personal saving would reach 7.5 percent of disposable income and 5.1 percent of GNP by 1985.
The actual record is quite different. Personal savings is expected to be 4 percent of disposable income and 2.8 percent of GNP this year.
Moreover, gross private saving in the United States has averaged 16.7 percent of GNP since 1980, down slightly from the 16.9 percent average for the 1976-1980 period, when tax rates were higher and IRAs available only to those with earned income who were not covered by another retirement plan.
This year, savings will dip to about 15.6 percent of GNP, according to economic forecasters. The last time it was lower was in the boom year of 1969, when it was 15.2 percent. (An upward revision in personal savings of a magnitude similar to that of 1980 mentioned by Greenspan would boost the overall figure for 1985 to about 16.3 percent of GNP, which still would be the lowest level since another boom year, 1972.)
Meanwhile, state and local governments are saving about 1.3 percent of GNP this year, primarily to finance retirement plans for their employes. But the federal government, with its big budget deficit, is borrowing from the savings of other sectors to the tune of 5 percent of GNP.
Thus, the nation's combined saving -- from households, businesses and governments -- in 1985 will be about 11.5 percent of GNP. That would be, by about 2 percentage points, the lowest such figure for any year since the mid-1940s.
Saving on that scale is simply not large enough to pay for what is being invested by businesses in inventories and new plants and equipment and by households in new homes. That total, gross private domestic investment, will be about 16.5 percent of GNP this year.
Most of the difference between what the United States is saving and what it is investing is being supplied from abroad, out of foreign savings. The measured flow of this foreign capital into the United States will be about 3.5 percent of GNP, not enough to close this very large 5-percentage-point gap.
Actual investment must, by definition, equal domestic savings plus any inflow or outflow of foreign savings. But each year there are large gaps in the measurement of those international flows, and the way in which the Bureau of Economic Analysis calculates personal savings makes that figure one of the less reliable numbers published.
Personal saving is derived by subtracting personal spending from personal income rather than being measured directly. Therefore, any errors that creep into the income or spending figures also end up in the savings number. And because saving is such a small share of income, a relatively small error in income or spending can make a big difference in the savings rate.
In examining the impact of various tax changes on the desire to save, economists such as Barry Bosworth of the Brookings Institution have pointed out that increasing the after-tax rates of return on savings can have either of two potentially offsetting effects.
The higher after-tax rate of return available after a tax cut could encourage an individual to reduce consumption and increase saving because the foregone consumption today would have a bigger impact on his income in the future, out of which he then could consume, than was the case before the tax cut.
However, that so-called income effect might be neutralized by a "substitution" effect. Suppose the individual is saving to achieve some relatively fixed goal, such as financing a college education or replacing a specific share of his current income after retirement. In that case, he will have to save less to achieve that goal if his after-tax rate of return on saving rises.
Bosworth says in his book "Tax Incentives and Economic Growth" that no one so far has sorted out empirically which effect predominates. "Assertions that an increase in the return to capital will or will not raise the overall private saving rate must be based on personal beliefs, because the existing empirical evidence must be judged as inconclusive," he says.
In a paper recently published by the National Bureau of Economic Research, economists B. Douglas Bernheim and John B. Shoven of Stanford University examined one part of personal income and saving that falls clearly in the fixed-goal class: corporate pension fund contributions.
Such contributions are included as part of overall personal income when the money goes into the pension fund, even though actual benefits may not be paid for years to come. And they are a significant share of personal saving. In 1983, the last year for which full data are available, they were about $65 billion, more than half of the $118 billion saved by the nation's households.
Bernheim and Shoven point out that most corporate pension plans are so-called defined-benefit plans; that is, they will pay benefits determined by a retiree's salary history and length of service. In defined-benefit plans, there is a commitment to pay the agreed-upon benefits regardless of how much the pension fund earns or loses on its investments over the years.
"The key point is that from the company's point of view, the funding of pension liabilities is a target -- and the higher the earnings of the assets funding the plan, the lower the contributions needed to meet the obligations," the authors say.
Tax rates are not an issue here, because pension funds are tax-free. But high real rates of return on investments are an issue. The surge in returns has encouraged many companies to reduce their current payments into the funds -- thereby reducing current personal income below what it otherwise would be -- and other companies have taken money out of the funds.
Measuring savings is a difficult task, and some of the apparent sharp drop in personal savings this year may be revised away. But such evidence as there is gives little support to the notion that the 1981 and subsequent tax changes have changed either overall saving or investment behavior in the American economy.
Certainly a lot of people shifted their savings around, into such tax-deferred pockets as IRAs, which now have about $200 billion invested in them. Whether these people have increased their saving is another matter.
Martin Feldstein of Harvard University, president of the National Bureau of Economic Research and former chairman of the Council of Economic Advisers, puts it this way: "I would not jump to the conclusion that people have saved more in response to the tax changes, or that they have not saved more . . . It is a tough issue to disentangle."
Taxes aside, though, it is plain that Americans are not saving enough to finance both their investment wants and the government deficit.