Consumer confidence in the United Stated declined in January due to the increase in Social Security taxes. Americans are now left with less take-home pay, causing consumer spending to decline. The consumer confidence in January decreased to the lowest level the United States has experienced in more than one year.
The Conference Board reported on Tuesday that its consumer confidence index declined from 66.7 in December to 58.6 in January. A difference of 8.1 indicates a significant decline in consumer confidence. The tax increase was a major contributor as many Americans became less optimistic about the next six months as reported by Conference Board Economist Lynn Franco.
When Congress and the White house reached a deal on January 1, 2013, no provisions were made to maintain the current cut in Social Security taxes. As a result, the cuts allowed under the Bush Administration for Social Security taxes expired. This means that an employee earning $50,000 per year would realize a decline in their take home pay by approximately $1,000.
With taxes increasing at a time when pay raises are scarce, consumer spending and economic growth are expected to decline. While the job market remains slow in growth, other markets such as the housing market, auto sales, and stocks are showing improvement.