NC State Economist Dr. Mike Walden – Did the Tax Hikes Hurt?

Most workers saw a 2 percentage-point increase in the payroll tax they pay this year. Some worry this will be bad for the economy by causing a reduction in consumer spending. Have we seen any evidence of this adverse effect yet? N.C. State University economist Mike Walden answers.

“Well … we just got the retail sales numbers for January, and some of the media outlets say that there was a big, big drop in January retail sales from December retail sales. And they said, ‘Ah, ha. That’s due to the increase in the payroll tax.’

“But there’s really more to that. First of all, we always, always see a drop in retail sales from December to January because people spend during Christmas, then they don’t spend in January. So we need to seasonally adjust … those numbers. When we do do that, we saw actually a slight increase in retail spending in January from December, less than the increase that we have seen. But I think probably the best comparison, is to compare January of this year, January of 2013 to January of 2012. There I think we get a much better idea of what’s happening. And actually over that year we saw a 4 percent … increase in retail sales.

“I think the bottom line here (is), yes, the payroll tax hike probably has not been helpful. Yes, all of the uncertainty about what’s going to happen with the next fiscal cliff is not helpful, but I think it’s really improved household finances and an improved housing market that’s really driving the economy. And those right now have been very, very positive.”


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