It's been almost two months since employers began withholding Social Security taxes from workers at the rate of 6.2 percent of wages.
Workers in 2011 and 2012 had a little more money to spend thanks to the payroll tax holiday. But this two-percentage-point cut in the Social Security tax withheld from workers' paychecks expired on Dec. 31, 2012.
That, says a recent survey, is why we're seeing less consumer spending in early 2013.Tax Policy Center analysts estimate that the full 2013 payroll tax will mean an average loss of about $740 to every worker.
And a just-released poll commissioned by the National Retail Federation (NRF) found that almost three-quarters of surveyed consumers said that their spending and budgeting plans have been negatively affected by the return of the full 6.2 percent FICA payroll tax.
The reduction of the payroll tax rate to 4.2 percent always was planned as a temporary stimulus tool. Still, many thought that the tax cut would be continued for at least another year as part of the fiscal cliff bill. But when Congress finally OK'ed the American Taxpayer Relief Act of 2012 on Jan. 1, the payroll tax cut was not included.
Early reports seemed to show that the return of the full payroll tax rate was negligible, as consumers kept up their shopping pace immediately after it expired. But those early reports, particularly numbers from the International Council of Shopping Centers (ICSC), were likely based on activity before people had received 2013 paychecks with more FICA tax taken out of them.
Michael Niemira, ICSC's chief economist, cautioned in an interview last month with the Washington Post that one month's numbers don't mean that shoppers are back to full health.
"The payroll tax is one of these things that accumulates," he said.
Retailers expecting fewer shoppers: That accumulation factor seems to be showing up in the NRF survey.
Of those greatly impacted by the loss of added income, nearly half (49.2 percent) plan to delay major purchases, such as a car, TV or furniture. Other notable findings:
- 45.7 percent say they will spend less overall.
- 35.6 percent will watch for sales more often.
- 33.5 percent will dine out less often.
- 24.5 percent will spend less on "little luxuries," such as trips to coffee shops, manicures and high-end cosmetic items.
And income levels also come into play as to how the return of the full payroll tax affects individuals.
Half of those surveyed who make less than $50,000 a year say they will spend less overall.
In this earnings group, 23.2 percent will spend less on groceries, compared to 16.7 percent of consumers who make more than $50,000 a year. Another 27.6 percent in the less-than-$50,000 earnings level say they will shop at discount stores more often, compared to 19.7 percent of adults making more than $50 grand.
Businesses worried: The NRF survey seems to underscore some corporate earnings worries.
Earlier this year, Family Dollar stores, one of the biggest dollar store chains in the country, announced that its end-of-2012 earnings fell short of analysts' projections. There was speculation that consumers were already cutting back in preparation for the payroll tax's return.
Now Wal-Mart, the world's biggest retailer, says its corporate earnings were hindered in part by the payroll tax increase.
Will the cumulative effect of the withholding tax continue through 2013? If so will Congress look at some other form of stimulus to get shoppers into stores? Maybe. But since there's no impending election, don't expect to see them jumping on this tax-break train as quickly.
How do you compare with the NRF survey participants? Has the return of the 6.2 percent withholding level affected your spending patterns? By a lot or just a little?
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