Social Security Tax Reduction Boosts Personal Income 1 Percent

February 26th, 2011 Brock Hailes Leave a comment Go to comments

The Social Security tax reduction taxpayers have received has resulted in a 1-percent personal income boost, says a new report from the Commerce Department. However, despite this increase in income, consumers have only increased their spending slightly, most likely because they’re waiting to see improvement in the economy.

Social Security Tax Reduced 2 Percentage Points

As a part of the major tax reform effort that took effect at the end of last year, Social Security tax was reduced 2 percent. This reduction serves as a replacement for the Making Work Pay tax credit taxpayers received in 2009 and 2010.

So far, the reduction has resulted in a 1-percent jump in personal income. But while lawmakers hoped the increase (which could give the typical family $1,000 in extra income) would encourage consumers to get out and spend, the Commerce Department says the most people are too cautious about the economy to make significant purchases with the extra money.

Gas and Food-Price Increases Discourage Spending

The Commerce Department reported that consumers increased spending 0.2 percent in January, which was the smallest gain since June. However, the $10.59 trillion spent does reflect a 7.4 percent increase from the recession low hit in December 2008.

A survey by the National Association for Business Economists released Monday predicted that consumer spending will rise 3.2 percent his year. However, now that Middle East and North Africa turmoil is affecting gas prices and causing them to rise rapidly, and food prices are expected to increase as well, actual spending could be closer to 1.8-percent increase we saw in 2010.

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