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To Gauge Payroll Tax Hike Impact, Look at Your Breakfast

NEW YORK (MainStreet) — In the first week or so in January, Americans got an unwelcome surprise in their paycheck — a 2% hike in the payroll tax as the temporary cut in payroll taxes ended Dec. 31.

The two-year suspension was meant to boost the economy and put more cash in consumers’ pockets. With the tax break is in the rearview mirror, its elimination just may be curbing Americans spending habits and hurting the economy.

So says SymphonyIRI, a Chicago-based consumer services company.

In a white paper released Monday, SymphonyIRI notes that a U.S. family with household income of $40,000 loses $800 with the elimination of the payroll tax break, which could manifest itself in small, but measurable ways.

You may be surprised to hear one of SymphonyIRI’s key warning signs: breakfast.

“Out-of-home consumption will likely drop, and specifically out-of-home breakfast categories,” says Krishnakumar S. Davey, managing director at Symphony Consulting, a division of SymphonyIRI. “Consumers usually eliminate the out-of-home breakfast meal first when they cut spending.”

A drop in income can also turn many families away from mass merchandise stores (at the mall or online) and turn them toward bargain outlets such as the Dollar Tree.

Not for nothing, but the Dollar Tree’s stock price has risen from $38 per share in the first week of January to $41 per-share in the second week of February.

Family Dollar, another bargain outlet, saw its share price fall from $72 per-share to $55 per-share from Dec. 10-31. After the payroll tax break was rescinded, the company’s stock price rose to $57 per share in the first five weeks of 2013.

Read More:   cost of living
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