Journal Express, Knoxville, IA

Community News Network

January 11, 2013

Here's why your paycheck just shrank

(Continued)

WASHINGTON —

But the open question for the economy in 2013 is whether Americans adjust differently when their paychecks have a tax-induced decline than they did when they received a bump.

In terms of consumer psychology, behavioral economists speak of "loss aversion," a tendency of people to be much more bummed out when they think they have lost something that belonged to them than if they gain it. A child might be much more upset to have a cookie taken away from them than they are happy to be given a cookie.

It is possible that as Americans learn of their lower take-home pay — either from reading news accounts around the fiscal cliff deal last week, or from opening their first paycheck of the year — they will adjust their entire spending plans for the year, which could make January a rough month for retailers and the economy as a whole.

In a new analysis, Goldman Sachs economists ran a number of different economic models to assess the impact of higher taxes from the fiscal cliff deal on the economy in 2013 (the payroll tax is the biggest, but they also included higher income tax rates on households making over $450,000 and some smaller tax provisions that reduce deductions for those making over $250,000). Those different models — Goldman's in-house macroeconomic model, one used by the Federal Reserve, and analysis drawn from work by economists Christina and David Romer examining how consumption patterns have adjusted in the past to changes in tax policy — all find a hit to growth of around one percentage point in the first half of the year. Given that growth has been bouncing around at about 2 percent since the recovery began in 2009, that is a big enough drag to make it feel like another sluggish year.

It was always clear that the payroll tax holiday would have to disappear eventually; keeping it on would endanger the finances of the Social Security system. But the fact that it is disappearing at a time unemployment is still very high, growth is slow, and no other policies such as new infrastructure investment were implemented to try to offset the effects could mean that payday isn't a fun day for American workers.

Text Only
Community News Network
Features
AP Video
Mint Gives JFK Coin a Face-lift Creative Makeovers for Ugly Cellphone Towers Ariz. Inmate Dies 2 Hours After Execution Began Crash Kills Teen Pilot Seeking World Record Raw: Funeral for Man Who Died in NYPD Custody Israeli American Reservist Torn Over Return Former NTSB Official: FAA Ban 'prudent' Six Indicted in StubHub Hacking Scheme Biden Decries Voting Restrictions in NAACP Talk Broncos Owner Steps Down Due to Alzheimer's Trump: DC Hotel Will Be Among World's Best Republicans Hold a Hearing on IRS Lost Emails Ex-NYC Mayor: US Should Allow Flights to Israel David Perdue Wins Georgia GOP Senate Runoff 98-Year-Old Woman Left in Parked Truck Home-sharing Programs Help Seniors Last Mass Lynching in U.S. Remains Unsolved Disabled Veterans Memorial Nearing Completion Raw: MD Church Built in 1773 Ravaged by Fire Flight to Tel Aviv From US Diverted to Paris
Facebook
Hyperlocal Search
Premier Guide
Find a business

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

Upon completion and reopening of Third Street, should the City of Knoxville wait to start the next stage of the Streetscape and Infrastructure project until 2015?

Yes
No
     View Results