Americans curtail spending due to tax increase

, Bloomberg

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The U.S. payroll tax increase that took effect this year may cause seven out of 10 Americans to curtail spending, especially on big-ticket items such as cars, according to a survey by the National Retail Federation.

About 73 percent of consumers said their spending plans are taking a hit, the Washington-based trade group said, citing a survey of 5,185 people conducted by BIGinsight from Feb. 5 to Feb. 13. More than a third said they'll reduce how much they dine out and 25 percent said they plan to cut back on small luxuries such as manicures and trips to coffee shops.

Almost half of consumers who describe themselves as "greatly impacted" by the change said they'll delay major purchases of items such as cars, televisions and furniture.

The Dec. 31 expiration of a payroll-tax break translates to $15 a week more in Social Security taxes for a person making $40,000 a year. The change, combined with lingering unemployment and higher fuel prices, has influenced consumer spending. Wal-Mart Stores Inc. executives last week cited the tax holiday's end, along with delayed tax returns, for the worst monthly sales start in seven years.

"A smaller paycheck due to the fiscal cliff deal early last month, higher gas prices, low consumer confidence and ongoing uncertainty about our nation's fiscal health is negatively impacting consumers and businesses across the country," Matthew Shay, chief executive officer of Washington- based NRF, said in a statement.

In order to build the middle class, the U.S. must remove hurdles "that prevent consumers from investing their hard earned money back into our nation's economy," he said.

Americans began paying 2 percentage points more in Social Security taxes on their first $113,700 in wages on Dec. 31. Consumers making less than $50,000 a year won't spend as much on groceries and boost shopping at discount stores, compared with shoppers above that threshold, according to the survey.

Wal-Mart, the world's largest retailer, discussed the impact on its business in internal e-mails obtained by Bloomberg News and reported Feb. 15. What the Bentonville, Arkansas-based company is seeing is likely to ring true for other retailers targeting "low-end" consumers, David Strasser, an analyst with Janney Montgomery Scott LLC in New York, has said.

"It's not Wal-Mart specific," he said.

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