Payroll tax hike: The personal income for Americans dropped 3.6 percent in January—the largest decline in 20 years. It was attributed to a number of factors, including the payroll tax hike from 4.2 percent to 6.2 percent.
In January, Americans as a whole experienced one of the deepest monthly declines in their income, which dropped 3.6 percent for the month in comparison with December’s figures. The Department of Commerce said it was the sharpest month-over-month decline since January 1993.
Some analysts said the decline was largely due to the Obama administration and Congress not extending the payroll tax cut from 2010, which allowed the tax to jump from 4.2 percent to 6.2 percent. Overall, personal income decreased by $505.5 billion in January, reported CNN Money.
“The large decrease in personal income in twenty years looks to be stock dividend-related whereby most companies prepaid them to avoid Obama’s tax hikes. Dividends are now taxed at 20 percent versus 15 percent last year,” Tom di Galoma, with the financial services company Navigate Advisors LLC, told ABC News last week.
However, the decline may not be entirely attributed to the payroll tax hike, as monthly income was exceptionally high in December because companies like Wal-Mart, Costco, Cisco, and others payed out monthly dividends to avoid the tax hikes, CNN points out. These companies paid them out late last year instead of waiting until 2013.
Chris Christopher, Jr. with IHS Global Insight, said that the 0.2 percent increase in spending, which amounted to around $18.2 billion, in January was “anemic,” CNN reported. He added that the payroll tax “hurt many Americans where it counts—in their pocket books.”
But the increase in consumer spending contradicted predictions laid out by big companies like Wal-Mart.
“Households responded to this hit to income by reducing their savings,” wrote Paul Dales of Capital Economics of the income decline, according to the Christian Science Monitor.
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