IES Blog

Effects of payroll tax cut end are complex

Posted on February 13th, 2013 Read time: 1 minutes

The expiration of the payroll tax cut in January has had little affect on retail sales, Business Insider reports.

Non-auto, non-gas sales retail sales were positive last month, with store sales up 5.1 percent year-over-year from 4.4 percent in December.

High Frequency Economics’ chief U.S. economist Jim O’Sullivan warned, however, that when payroll tax cuts went into affect two years ago, the impact on consumer spending was not immediately apparent and grew noticeable after some time, according to the news source.

In addition, O’Sullivan noted the recent increase in the portion of each paycheck going to taxes is likely impacting high earners the most because they’re saying goodbye to much larger sums than lower-wage earners. Upper-income individuals are more likely to have savings to rely on and therefore aren’t altering their spending habits.

Meanwhile, separate findings suggest the payroll tax cut’s end is affecting consumer packages goods sales. SymphonyIRI, an analytics and software provider, recently determined for a consumer with a household income of $40,000, his or her spending power has been reduced by $800 per year.

People may be choosing different brands, eliminating some purchases and shopping at value-centric stores, which affects the grocery industry.

All businesses are likely impacted by the elimination of the tax cut in some way. Consider seeking the aid of a a payrolling service provider to prevent errors and headaches.


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