The expiration of the payroll tax holiday has caused a staggering three-quarters of American households to cut their consumer spending, according to a survey by the National Retail Federation.
Nearly three-quarters (73.3 percent) of those polled say their spending plans have gone down as a result of the increase, the group found.
In 2010, President Barack Obama enacted a 2 percent cut in the payroll tax, which reduced employees’ Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid. This saved the average American worker a reported $700 a year, according to the Tax Policy Center.
The payroll tax cut was allowed to expire in the “fiscal cliff” deal passed on Jan. 1. Neither President Barack Obama nor his Republican opponent Mitt Romney reportedly favored its extension. The fiscal cliff deal also included tax hikes on the top 2 percent of Americans.
When asked how the new levies have affected their spending, nearly six in 10 (58.2 percent) said their plans have been either somewhat or greatly impacted. Nearly half (45.7 percent) of those reported said they would spend less overall, and 35.6 percent would watch for sales more often, one-third (33.5 percent) would reduce how much they dine out, and 24.5 percent would spend less on “little luxuries.”
“We cannot grow the nation’s economy until consumers consume,” said NRF President and CEO Matthew Shay in a statement. “A smaller paycheck due to the fiscal cliff deal early last month, higher gas prices, low consumer confidence, and ongoing uncertainty about our nation’s fiscal health is negatively impacting consumers and businesses across the country.”