Does it seem like your paycheck has gotten smaller? It has: 2 percent smaller, in fact, than it was in 2011 and 2012.
Back then, employees only kicked in 4.2 percent of their wages towards Social Security thanks to a temporary rate cut as part of a plan to stimulate the economy. But as of January 1, 2013, the payroll tax, which funds Social Security, among other things, jumped back up to 6.2 percent, where it had been before. That translates to about $700 per average worker annually, reports the Tax Policy Center, a non-partisan research center.
Many economists and retailers have worried that the increase will affect consumer spending-and so far, at least two stores have noticed a decline in sales.
Walmart, the world's largest retailer and the biggest private US employer, had the worst start to a month in seven years, based on internal company emails obtained by Bloomberg News.
In a February 12 email, Jerry Murray, Walmart's vice president of finance and logistics, said that the February month-to-date sales were a "total disaster."
In another internal email, Cameron Geiger, senior vice president of Walmart U.S. Replenishment, asked, "Where are all the customers? And where's their money?
A month earlier, on a January 3 conference call, Family Dollar Stores Inc. Chief Executive Officer Howard Levine noted that higher payroll taxes "go against our customers' wallet. Clearly, they do not have as much for discretionary purchases than they did," he said.
A report from the National Retail Federation, a retail trade association, found that January retail sales (excluding cars, gas and restaurants) increased 0.3 percent seasonally adjusted from December. These retail sales figures indicate a "stable yet fragile economy," NRF President and CEO Matthew Shay said in a statement.
January retail sales, released on February 13 by the U.S. Department of Commerce, showed total retail and food services sales (including cars, gas, and restaurants) increased 0.1 percent seasonally adjusted.
But Jim O'Sullivan, chief US economist with High Frequency Economics, in Valhalla, N.Y., told ABC News that the payroll tax is a "hit to growth, but not a devastating blow."
"Certainly a lot of people live paycheck to paycheck, but a lot of people don't," he said. "With some people it won't affect their spending, it will just affect their savings rate. It varies from person to person."
Robert Johnson, director of economic analysis at Morningstar, a Chicago-based investment research firm, believes the payroll tax has caused "a little slowing, but nothing very dramatic."
He argues that any economic downshift is not just because of the increased payroll tax, but also because tax refunds have not gone out yet. "To the high-end guy that doesn't make a difference, but to someone counting on an income tax refund that's another matter."
He also cites high gas prices- as of Feb. 15, the average price per gallon rose to $3.64, according to AAA.com, compared with $3.29 a month ago-as another factor affecting Walmart's sales. "People tend to drive long distances to get to Walmart, and so when gas prices go up, people say, 'I'll go to local store but I'm not making a special trip because it will cost me money with higher gas prices."
Becki Dilworth, director of online marketing at ShopAtHome.com, a savings web site, noted that there was a 50 percent increase in January, and the site experienced less seasonal decline than it normally does. She interprets this to mean that "there is more interest in savings"-especially among shoppers interested in higher-end shops like Calvin Klein or J. Crew.
"That tells me that folks who maybe previously wouldn't have couponed or concerned themselves with saving more are now starting to do that more," she said.
However, she added, there was not any significant change in grocery coupons, which indicates that consumers are "continuing to do what they've always done for an everyday shopping tool," she said.
- Budget, Tax & Economy
- Social Security
- payroll tax