How Much Do Payroll Taxes Impact Consumer Spending?

Automotive purchases, soaring stock indexes, rising home values, and less consumer saving have indicated that the economy is shedding its slump and returning to even higher and more unexpected levels, following the expiration of the payroll tax cuts earlier this year.

Although it was forecast that consumer spending would remain low — which it has, in many industries — certain indicators of economic health are looking positive. Housing and auto sales have been rising steadily, and employment has been on an upswing as well, as the U.S. added 246,000 private sector jobs in February, according to Bloomberg.

“A lot of things are going the right way,” said Brian Jones, a senior U.S. economist at Societe Generale in New York. “The labor market is picking up momentum. Businesses are seeing demand. More people working means more people will be spending money. To a certain extent, this neutralizes the effects of higher taxes…