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Feeling short? You're not alone - Americans see biggest monthly income drop in 20 years

By Catholic Online (NEWS CONSORTIUM)
March 4th, 2013
Catholic Online (www.catholic.org)

If you have a lot less money to go around for bills this month, you're not alone. Americans across the board saw a monthly decline in income, the biggest in 20 years, as certain things conspired to meddle with the worker's average take-home pay.

LOS ANGELES, CA (Catholic Online) - Personal income decreased by $505.5 billion in January, or 3.6 percent, compared to December. It represented the most dramatic decline since January 1993, according to the Commerce Department.

As is usually the case, it was a lot of little things adding up to one big thing. For example: Monthly income was unusually high in December because companies paid out early dividends to avoid upcoming tax hikes. Companies like WalMart, Oracle and Costco Wholesale Corp paid special dividends to their shareholders at the end of 2012, instead of waiting for this year.

They helped their high-income shareholders, who are defined as individuals earning at least $400,000 a year, or married couples earning $450,000 avoid paying higher taxes on their gains. Lawmakers decided to raise dividend tax rates for high-income households from 15 percent to 20 percent as part of their "fiscal cliff' strategy.

The payroll tax cut's expiration also played a role in January's drop, because most workers have to pay two percentage points more in taxes this year. The Commerce Department's "personal income" calculation subtracts out individuals' contributions to government social insurance programs like Social Security, which are funded by the payroll tax.

The Commerce Department estimates that after-tax income actually increased 0.3 percent in January.

Economists in the meantime are closely watching consumer spending, which accounts for about two-thirds of the U.S. economy. They're waiting to see how the payroll tax hike will affect the broader recovery.

Economists such as Chris Christopher, Jr. of IHS Global Insight, called that "anemic" and pointed to weak retail sales at low-end and mid-tier retailers as proof that consumers are being squeezed.

The payroll tax cut "hurt many Americans where it counts -- in their pocket books," Christopher said.

Retail giant WalMart, the nation's largest retailer, said it's late January and early February sales have been slow, which it blamed on higher payroll taxes, delays in income tax-refund processing, and higher gas prices.

Rising gas prices in February could also cut into consumer spending temporarily. Gas prices rose 10 percent in February, according to AAA, but are expected to fall in coming weeks.

All of that said, consumers are benefiting from a housing recovery and rising stock prices. The Consumer Confidence Index rose in February, showing that Americans are more upbeat about the economy than they have been in a very long time.

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