January 29, 2013
U.S. consumer confidence took a dive this month, wiping out all the gains of 2012, a drop fueled by the expiration of the 2 percentage point cut in payroll taxes, the Conference Board reported Tuesday.
The tax increase took effect on Jan. 1, and though long expected in Washington, it appeared to take consumers by surprise. It was included in the $650 billion “fiscal cliff” tax package passed by Congress in the early morning hours on New Year’s Day. The bill was dubbed by the media as a “tax hike on the rich,” but the payroll tax provision hit the paychecks of primarily middle- and low-income consumers.
“The increase in the payroll tax has undoubtedly dampened consumers’ spirits and it may take a while for confidence to rebound and consumers to recover from their initial paycheck shock,” said Lynn Franco, economist at the Conference Board.