orangeleader.com (Orange, Texas)

Top Stories

March 1, 2013

Payroll tax hike: Killer whale or red herring?

WASHINGTON — Companies are rushing to describe the impact of higher Social Security taxes that took effect in January. They paint a bleak picture.

Cash-strapped shoppers are spending less, many U.S. firms warned in earnings announcements over the past few weeks. They are avoiding small luxuries like restaurant meals and fashion items. And they're reconsidering major new purchases. Wherever people chose to cut back, those companies would feel the pinch.

In the past, companies have blamed flu epidemics, earthquakes and SARS for poor results. The trouble, experts and analysts say, is that these high-profile events are only part of the story — sometimes barely a sliver.

The latest culprit is a 2 percent increase in the Social Security payroll tax, which all U.S. wage earners pay. The rate was reduced temporarily as a measure to boost the economy out of recession, but that "holiday" ended on Dec. 31. As a result, households earning $50,000 will have about $1,000 less to spend this year. A household with two high-paid workers will have up to $4,500 less.

"Any time something like this happens — whether Hurricane Sandy or the tsunami or the payroll tax hike or uncertainty in Washington — any company that didn't perform as well as they would have liked gets to say, 'Look, these idiots in Washington are screwing it up for us,'" says Dan Greenhaus, chief global strategist at BTIG, a brokerage firm.

Greenhaus says he is not surprised by the number of companies grousing about payroll taxes. A catchy news hook can help companies "blame a macrotrend for what may be a micro story" about their individual strengths and weaknesses, he says.

There's little doubt that the drop in take-home pay will drag on economic growth. Government economists estimate it will lower economic output 0.6 percent this year.

Text Only
Top Stories
Hyperlocal Search
Premier Guide
Find a business

Walking Fingers
Maps, Menus, Store hours, Coupons, and more...
Premier Guide