Does anyone remember how President Obama constantly told the people that he had cut taxes on middle class Americans? What he didn’t say was that he really just gave them a little payroll tax holiday, which isn’t quite the same as a tax cut. Once he won reelection he quickly moved to put an end to the holiday, in effect raising taxes on every working American. Now consumer confidence has been sapped. What a shock.
U.S. consumer confidence took a dive this month, wiping out all the gains of 2012, a drop fueled by the expiration of the 2 percentage point cut in payroll taxes, the Conference Board reported Tuesday.
The tax increase took effect on Jan. 1, and though long expected in Washington, it appeared to take consumers by surprise. It was included in the $650 billion “fiscal cliff” tax package passed by Congress in the early morning hours on New Year’s Day. The bill was dubbed by the media as a “tax hike on the rich,” but the payroll tax provision hit the paychecks of primarily middle- and low-income consumers.
“The increase in the payroll tax has undoubtedly dampened consumers’ spirits and it may take a while for confidence to rebound and consumers to recover from their initial paycheck shock,” said Lynn Franco, economist at the Conference Board. (Read More)
Since most people aren’t getting raises, how much can people rebound from the “shock” of lower paychecks?