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Consumer Spending Rises Despite Increased Taxes

May 2, 2013

Most US taxpayers were hit by an increase in payroll taxes in January 2013. It was expected that the increase would affect consumer spending. According to the Commerce Department, the rise has not affected consumer spending, which rose 0.2 percent from February to March. A jump in February of 0.7 percent is an indicator that consumer spending has not been affected by the rise in taxes. On the contrary, statistics reveal that consumer spending has risen at the fastest pace from January to March in more than two years.

When the factors in consumer spending are considered, it seems that the increase in consumer spending might be temporary. The unusual cold in March was partly the reason for the hike, as Americans paid more for heating. Spending on indispensable services is not a steady base for judging future growth.

Even with the hike in overall consumer spending, there has been a reduction in retail stores and restaurant sales. According to a report, March was the steepest decline in retail and restaurant sales in nine months.

As most of the tax hike and new taxes were targeted towards the rich and the affluent, it is the expiration of the tax cut in payroll taxes that has influenced consumer spending because it affects most American taxpayers.

Consumer spending is a very important factor in predicting economic growth because it alone is responsible for as much as 70 percent of US economic activity.

Economists predict that there will continue to be a rise, though slow, in jobs. They also predict the savings of American taxpayers to get stable after the current slight fall. The short-term effects of higher taxes will wear out soon, and the picture of the economy will get clearer. Till then, the only way for taxpayers to save money in taxes is to take advantage of the various tax credits available to them.

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