Consumers Keep Spending Despite Payroll Tax Hike

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.

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