Consumer Spending Plummets After Payroll Tax Increase

When President Barack Obama and Congress agreed to increase the federal payroll tax by two percent to temporarily avert the so-called fiscal cliff in January, Americans were left with less money to spend. Now, some of the country's largest companies are seeing sales plummet as a result. 

On top of high gas prices, job uncertainty, and stagnant wages, the payroll tax cut expiration, which increased that tax by 2%, will "ding a household with $65,000 in annual income $1,300 this year." Citigroup estimates the payroll tax increase will take "$110 billion overall out of consumers' hands."

According to the Wall Street Journal, companies like WalMart, Burger King, Kraft Foods, and Tyson Foods have said they are lowering earnings forecasts and "adjusting sales and marketing strategies, expecting consumers with smaller paychecks to dine out less and trade down to less expensive purchases."

Even worse, these companies believe the "changes could be long-lasting and are revamping operations" to cater to a consumer base that is spending less, which does not bode well for the sputtering economy. 

Retail experts agree, telling the Journal that what happens at companies like WalMart is often a leading indicator for the rest of the retail economy. 

The U.S. Commerce Department estimated sales in January "rose at their smallest rate in three months," and companies like WalMart and Burger King do not expect sales to get better anytime soon. 


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