Are The Effects Of The Payroll Tax Increase Just Psychological?

NEW YORK (MainStreet)—Ian Aronovich, who runs a government auctions website in Great Neck, NY, has tightened his household budget in response to the increased payroll taxes, which has had working Americans taking home on average $130 less per month as of January 1.

“Once the payroll tax was announced, we called up our cable company and negotiated a discounted rate for phone and TV, as if we were first time customers,” Aronovich said. Plus, his wife and he canceled their phone service and ported the number to Ooma Telo, which costs just over $3 monthly.

He’s not alone. Many Americans, in fact, are cutting back on their social life, with 20% forced to cut back on going out to bars and restaurants and 19% putting a limit on eating lunch out, according to a recent Accounting Prinicpals 2013 Worknomix Survey.

As people start to notice the less robust figures in their bank account, they may begin to have a sense of paranoia.

“People are saying, ‘This is going to have an impact, I’m going to get my expenses under control,’” said Mike McNamera, a vice president at Accounting Principals.

The payroll tax cut was estimated to drop GDP by 0.8%, or $125 billion. As long as GDP comes in higher than this expected drop then the U.S. would not fall into negative growth and avoid a recession. But though the effects may not have national implications, this is dinging people in the pocketbook at a personal level.

Ted Bovard, managing director and principal at Fort Pitt Capital Group in Pittsburgh, Penn., said this was the tax change that snuck up on people.

“The thing that threw people off is that with all the other tax increases and changes, everyone forgot about the payroll tax,” he said.

People were focused, he said, on the tax bracket jumps for people making over $400,000 and marrieds over $450,000, but if you’re making $40,000 to 50,000, you just dropped a couple thousand bucks.