Tags: Payroll | tax | increase | pain

Payroll Tax Increase Spares Consumers Pain — So Far

By    |   Tuesday, 26 March 2013 11:23 AM

Many economists were worried the 2-percentage-point increase in payroll taxes that began Jan. 1 would put a major dent into the consumer, but it hasn’t

Consumer confidence and spending have held up well, CNBC notes.

The Thomson Reuters/University of Michigan consumer sentiment index soared to 77.6 in February from 73.8 in January, surpassing economists’ consensus forecast.

Meanwhile, retail sales surged 1.1 percent in February, the biggest gain in five months.

A new Bankrate.com survey shows that 55 percent of Americans were unaware of or unaffected by the payroll tax hike.

"It was a little anti-climactic," Taraneh Fultz of Portland, who works at a distribution company, told CNBC. "It wasn't as big a deal as we were actually thinking."

She and her husband had curbed their budget in anticipation of the tax increase, but now may pull back a bit from the austerity.

The numbers haven’t been lost on Mark Zandi, chief economist at Moody's Analytics. "It's very encouraging,” he told CNBC. “It means other things going on are helping. We are weathering the storm well, at least so far, better than I would have thought."

The wealth effect of the housing and stock market rallies could be propping up spending, Zandi said. But he cautioned that it’s still early in the year.

Still, some economists maintain that consumer spending will stay strong.

“You’re seeing an improving trajectory in the labor market, which means stronger aggregate wages and salaries, and that’s going to be good for consumer spending,” Neil Dutta, head of U.S. economics at Renaissance Macro Research, told Bloomberg.

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Many economists were worried the 2-percentage-point increase in payroll taxes that began Jan. 1 would put a major dent into the consumer, but it hasn’t
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2013-23-26
Tuesday, 26 March 2013 11:23 AM
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