Phoenix high school teacher Kenny Williams said he’s cutting back on his “family splurge fund” for movie and sports outings after the reinstated U.S. payroll tax lowered his first paycheck of the year by $30.
The 46-year-old single dad of two was shopping at the 99 Cent Only store in Phoenix last week to save money on groceries and partly offset the $60-a-month cut he expects in his take-home pay. Dinners out also will go, he said.
“I don’t normally shop here for food, but I am now,” Williams said, as he struggled to find healthful items in an aisle he said was filled with high-fructose corn syrup. “You have to make up for it somehow. When you already are on a tight budget, something has to be done.”
By tomorrow, most Americans will have experienced the hit to their checks firsthand after Congress let a two-year-old payroll tax break expire while averting bigger automatic cuts that were to take effect this month. The 2 percentage point increase in taxes will take $125 billion from consumers’ pockets this year, estimates Michael Feroli, chief U.S. economist for JPMorgan Chase & Co., which in October lowered its forecast for first-quarter economic growth to 1 percent from 1.5 percent.
The tax bump will range from about $4.50 a week for a single person earning at the poverty level to $46.64 a week for someone making the maximum $113,700 subject to the tax in 2013. Any additional earnings beyond that amount won’t be affected.
‘Little Decisions’
While the reductions are small relative to paychecks, workers eventually will cut back, said Meir Statman, the Glenn Klimeck Professor of Finance at the Leavey School of Business at Santa Clara University in California.
“It will be in the little decisions people make, small amounts,” said Statman, who wrote a 2011 book that studied how emotions and other factors influence investor behavior. “Things like whether you eat at McDonald’s are most likely. People still have to pay for housing and food and they aren’t going to give up their phones.”
The Bloomberg Consumer Comfort Index posted its biggest one-week drop since August in the seven days ended Jan. 6, falling to minus 34.4 from minus 31.8 the prior period.
Automatic Data Processing Inc., which handles paychecks for about one out of every six workers in the U.S., said about 75 percent of its clients pay employees either every two weeks or twice a month. Most of the rest pay weekly and a very small number pay monthly, said Michael Schneider, a spokesman for Roseland, New Jersey-based ADP.