Americans cut spending to cope with payroll-tax increase
A change in federal tax law that decreased the take-home pay of working Americans is affecting household budgets, according to a survey by the National Retail Federation (NRF), a trade association.
On Jan. 1, 2013, Congress passed the American Taxpayer Relief Act of 2012, the so-called fiscal cliff bill that was signed into law the following day. The legislation did not extend a 2% temporary payroll-tax cut in effect since 2011, thus increasing from 4.2% to 6.2% the Social Security (FICA) employee tax on the first $113,700 of wages. The portion of the tax employers pay remains at 6.2% of employee wages for a total Social Security FICA tax of 12.4%. The Internal Revenue Service issued new 2013 tax withholding tables for employers.
The NRF’s 2013 Tax Returns Survey, which polled 5,185 U.S. consumers from Feb. 5-13, 2013, revealed that nearly three-quarters (73.3%) of respondents said their spending plans were taking a hit.
“A smaller paycheck due to the fiscal cliff deal, higher gas prices, low consumer confidence and ongoing uncertainty about our nation’s fiscal health is negatively impacting consumers and businesses across the country,” said NRF President and CEO Matthew Shay in a press release.
When asked how the new federal tax laws have affected spending, saving or budgeting of their households:
• Nearly six in 10 (58.2%) of respondents said their plans have been either somewhat or greatly affected.
• Nearly half (45.7%) said they will spend less overall, and 35.6% will watch for sales more often.
• Of those who said they had been greatly affected by the tax increase, nearly half (49.2%) will delay major purchases, such as a car, TV or furniture, and 58.2% will dine out less frequently. Another 43.4% will contribute less to savings, 46.4% will comparison-shop more often, and 54.4% will spend less on clothing.
• Fifty percent of those who make under $50,000 a year said they will spend less overall. Additionally, 23.2% will spend less on groceries, compared with 16.7% of consumers who make more than $50,000 a year, and 27.6% will shop at discount stores more often, compared with 19.7% of adults making more than $50,000.
“Americans are extremely mindful of how they spend their hard-earned money these days,” said BIGinsight Consumer Insights Director Pam Goodfellow in the same release. “Thanks to years of practice stemming from high gas and food prices and an uncertain economy, families will adjust to the changes in their take-home pay by purchasing generic brands, searching for coupons, downgrading on services like cable and Internet, and re-evaluating their overall spending habits.”
©2013 SHRM. All rights reserved.
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