Economy
2:53 pm
Mon February 25, 2013

Too Soon To Blame Payroll Tax For Stagnant Retail Sales?

Originally published on Mon February 25, 2013 4:23 pm

For Darden Restaurants, the company behind Olive Garden and Red Lobster, its earnings projections out last week were not pretty. Sales will fall, it said, and company CEO Clarence Otis called higher payroll taxes a "headwind."

After a two-year tax break, the payroll tax, which funds Social Security payments, went back up to 6.2 percent on Jan. 1. The 2-percentage-point increase is an extra $80 a month in taxes for someone earning $50,000 a year.

Other companies, including Family Dollar and Burger King, are also blaming the payroll tax increase for hurting bottom lines. But some analysts say those charges are premature.

"I'm kind of skeptical that anybody can say that with much certainty yet," says Christopher Carroll, an economics professor at Johns Hopkins University. He says that while it's likely smaller paychecks will affect spending eventually, we just don't know yet.

Payroll Taxes, Or General Uncertainty?

Indeed, recent trends are all over the map. Consumer sentiment surveys say we're feeling better about the economy, but unemployment is still high and gas prices have been rising steadily.

"In any given month, or any given quarter, the size of those other effects is likely to swamp just any one effect like the payroll tax," Carroll says.

Wal-Mart is another company pointing to the payroll tax as one reason it expects slow sales ahead. Even so, spokesman Randy Hargrove says, "to date, we're not seeing any measurable changes in our traffic patterns yet." But customers are talking about it, he added.

But just about anything — "from weather to less inflation in food, to what's going on in Washington" — can change how shoppers spend, says Frank Badillo, senior economist with Kantar Retail.

Americans still managed to buy more stuff last month, though the increase was a puny 0.1 percent. Sales started to slow toward the end of last year, before payroll taxes went back up. The issue, Badillo says, was general uncertainty.

"[Consumers] never pulled the plug on their spending," he says, "but clearly all the talk out of Washington had an impact."

Retailers Watching Closely For Signs

Still, the payroll tax remains target No. 1 for some retailers worried about their future. The industry's trade group, the National Retail Federation, released survey results last week that it says showed recent payroll tax changes were heavily swaying shoppers.

"Almost half of consumers, about 45 percent, say that they're going to spend less overall as a result of the new federal tax laws," says Kathy Grannis, an NRF spokesperson.

Look closely at the survey, however, and it never actually used the words "payroll tax" anywhere in its questions. Instead, it asked about what it called the "new Fiscal Cliff tax laws." Some economists are skeptical that many Americans have even noticed their lower take-home pay yet.

At Wal-Mart, the company is watching closely and says it will lower prices if the payroll tax does change how its customers shop.

And customers "may cut back from, say, beef to chicken," says Hargrove.

But that's still an "if." Wal-Mart says it didn't see a noticeable jump in sales when payroll taxes were cut two years ago. In surveys, consumers said they were using the extra money to pay down debt. And if we never spent more to begin with, it's possible we might not cut our spending, either.

Copyright 2014 NPR. To see more, visit http://www.npr.org/.

Transcript

AUDIE CORNISH, HOST:

You're listening to ALL THINGS CONSIDERED from NPR News.

Big retailers and restaurants have been pretty gloomy lately about the prospects for boosting sales. Most of us customers are paying more in payroll taxes. The payroll tax, which funds Social Security, went back to 6.2 percent in January. Now, if you earn, say, $50,000 a year, you're now paying an extra $80 a month. And businesses are worried you'll hold onto your wallet more tightly.

Well, as NPR's Dan Bobkoff reports, that worry may be premature.

DAN BOBKOFF, BYLINE: For Darden Restaurants, the company behind The Olive Garden and Red Lobster, its earnings projections out last week were not pretty. Sales will fall, it said. The company CEO called the higher payroll taxes a headwind. Soon, more companies joined in: Family Dollar, Burger King, all blaming the 2 percent rise in payroll taxes for hurting bottom-lines.

CHRISTOPHER CARROLL: I'm kind of skeptical that anybody can say that with much certainty yet.

BOBKOFF: Christopher Carroll is an economics professor at Johns Hopkins University. He says it's likely our smaller paychecks will affect spending eventually, but we just don't know yet. Recent trends are all over the map. Consumer sentiment surveys say we're feeling better about the economy, but unemployment is still high, and gas prices have been rising steadily.

CARROLL: For any given month or any given quarter, the size of those other effects is likely to swamp just any one effect like the payroll tax.

BOBKOFF: Wal-Mart is another company pointing to the payroll tax as one reason it expects slow sales ahead. But when I asked Wal-Mart's spokesman Randy Hargrove how much the payroll taxes are already affecting sales, he said...

RANDY HARGROVE: To date, you know, we're not seeing any real measurable changes in our traffic patterns yet.

BOBKOFF: Though he did say customers are talking about it. But just about anything can change how shoppers spend, says Frank Badillo. He's senior economist with Kantar Retail.

FRANK BADILLO: Everything from weather to less inflation and food to what's going on in Washington.

BOBKOFF: Americans still managed to buy more stuff last month, though the increase was a puny tenth of 1 percent. Badillo says sales started to slow toward the end of last year, before payroll taxes went back up. The issue, he says, was general uncertainty.

BADILLO: They never pulled the plug on their spending, but clearly, all the talk out of Washington had an impact.

BOBKOFF: Still, the payroll tax remains target number one for some retailers worried about their future. The industry's trade group, the National Retail Federation, put out survey results last week that it said showed recent payroll tax changes were heavily swaying shoppers. Kathy Grannis is an NRF spokesperson.

KATHY GRANNIS: Almost half of consumers, about 45 percent, say that they're going to spend less overall as a result of the new federal tax laws.

BOBKOFF: But look closely at the survey, they never actually used the words payroll tax anywhere in its questions. Instead, it asked about what it called the new fiscal cliff tax laws. Some economists are skeptical many Americans have even noticed their lower take-home pay yet. At Wal-Mart, spokesman Hargrove says the company is watching closely. It will lower prices if the payroll tax does change how its customers shop.

HARGROVE: They may cut back from, say, beef to chicken.

BOBKOFF: But that's still an if. Two years ago, when the payroll taxes were cut, Wal-Mart says it didn't see a noticeable jump in sales. Consumers told surveys they were using the money to pay down debt. If we never spent more to begin with, it's possible we might not cut our spending, either. Dan Bobkoff, NPR News, New York. Transcript provided by NPR, Copyright NPR.

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