Payroll tax hike doomsday: Stocks, real estate buffer impact

By Martha C. White

Economists predicted catastrophe: As workers started taking home paychecks in January that were 2 percent lighter ? thanks to the expiration of the payroll tax cut ? they thought consumer confidence and spending would tank.

So far, it hasn?t.

Retail sales rose more than analysts expected last month, and consumer confidence rebounded. In a?new survey from Bankrate.com, 48 percent of respondents said they didn?t notice having less money, while 7 percent said it hasn?t affected their finances.

?It was a little anti-climactic,? said Portland, Ore. resident Taraneh Fultz, who works at a distribution company. ?It wasn?t as big a deal as we were actually thinking.? Fultz said she and her husband might return some of the discretionary income they had shaved from their budget in anticipation of the tax increase.

?It wasn?t until I saw my paycheck that I realized how important 2 percent was. That?s not to say it was devastating for us. ... It definitely wasn?t,? said Alex Shorter, who works at a technology company in Atlanta. ?In the grand scheme of things, it hasn?t affected our standard of living.?

?It?s very encouraging. It means other things going on are helping,? said Mark Zandi, chief economist at Moody?s Analytics. "We are weathering the storm well, at least so far, better than I would have thought."

Zandi cautioned against reading too much into a survey of consumer perceptions, noting that the impact could take longer to manifest, but he said record highs in the stock market and a rebounding real estate market contribute to the so-called ?wealth effect.?

The stock market and higher home values don?t put money into people?s pockets, but people are willing to save less and spend more, Zandi said.

Shorter, who works at the IT company, said his family?s savings are aggressive but that ?ultimately, we are putting a little less into savings as a result of this.?

?The job creation numbers were sufficient to make consumers believe that their economic situation was improving,? said Richard Curtin, director of Surveys of Consumers at the University of Michigan?s Survey Research Center, which publishes a monthly survey of consumer confidence. For February, consumer sentiment rose roughly 5 percent over January?s figure.

?Hours increased and employment increased, so more people had more money in their income even if taxes were higher,? Curtin said.

Only 30 percent of respondents to Bankrate?s survey said they cut spending. This figured prominently among the middle class: 42 percent of respondents with household incomes between $50,000 and $75,000 said they were spending less.

Bryan Smith, a police officer in Haledon, N.J., said his family planned to spend less this year anyway because of rising healthcare costs and a deferred raise. ?You forget it?s there but you got used to that little bit extra,? he said.

That was the idea. The two-year reduction in an employee?s portion of the payroll tax that gets funneled toward Social Security to 4.2 percent from 6.2 percent was a measure designed to trickle-charge rather than to jump start the economy.

In other words: Rather than give Americans a lump sum ? which would be more likely saved or used to pay down debt ? doling out a few bucks more per paycheck increased the odds that they would feed that money back into the economy without really thinking about it.

?That?s the beauty of this approach to doing a stimulus. It?s stealthy,? Zandi, the Moody?s analyst, said.

It was a boost consumers weren?t supposed to notice, so it might not be so surprising that so many didn?t notice its disappearance.

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Source: http://feeds.nbcnews.com/c/35002/f/653351/s/29f6e25b/l/0Llifeinc0Btoday0N0C0Inews0C20A130C0A30C250C174172680Epayroll0Etax0Ehike0Edoomsday0Estocks0Ereal0Eestate0Ebuffer0Eimpact0Dlite/story01.htm

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