Brad Plumer explains why the expiration of the payroll tax cut at the start of the year has not affected consumer behavior.
“One possibility is that many workers aren’t even aware that their taxes have risen yet… A full 48 percent of Americans haven’t noticed the change at all… In particular, low-income Americans were least aware of the change, with 59 percent not noticing any difference.”
“So what does this mean going forward? There are a few possibilities. 1) Once most Americans realize that their disposable income has shrunk — by $1,000 this year, on average — they could cut back on spending significantly… 2) Most Americans will continue to maintain their current levels of spending anyway, even though they have less take-home pay. They’ll simply borrow more to make up the difference… 3) People will eventually notice the payroll tax hike, but… the U.S. economy has reached escape velocity and the payroll tax hike can’t pull it back down.”