Consumers Keep Spending Despite Payroll Tax Hike

It's been nearly three months since federal payroll taxes reverted to 2010 levels. But a new study finds most consumers are acting as if nothing has changed.

When the payroll tax cut expired, there was a widespread concern that the increase would disproportionately hurt lower-income earners. These individuals tend to spend more of their paycheck immediately. In theory, higher taxes should have slowed consumer spending.

“The conventional wisdom was really thrown on its ear.”

Greg McBride is a senior financial analyst with financial publishing firm Bankrate.com. He says roughly half of those surveyed either hadn’t noticed or weren’t affected by the expiration of the tax cut.

“And specifically, those lower-income households, they had the least likelihood of cutting back on spending and the greatest likelihood to respond that they hadn’t even noticed the change.”

McBride says those most likely to have cut spending were households earning between $50,000 and $75,000 a year.

Bio photo of Andrew Schneider

Andrew Schneider

Business Reporter

Andrew Schneider joined KUHF in January 2011, after more than a decade as a print reporter for The Kiplinger Letter...