With take-home pay increasing on average by 2% in 2011, consumers are unsure as to whether they will spend, save or pay down debt with the tax windfall, a recent survey by the International Council of Shopping Centers and Goldman Sachs (ICSC-GS) has found.

 

“While economic theory generally posits that consumers will spend some of the money, theory and empirical evidence suggests that the consumers’ ‘propensity to spend’ from temporary disposable income
will be smaller than if the reduction was permanent,” observed Michael P. Niemira, ICSC’s vice president for research and chief economist.


In fact, the ICSC-GS survey of 1,000 households, which was conducted by MarketTools Inc., found that a hefty 27% of consumers were unsure what they would do with the added disposable income while 26% reported that they were likely to use the money to pay down outstanding debt. A little over a fifth (22%) of consumers anticipated
that they would likely save most of the money while a quarter of consumers reported they would likely spend some of it (16%) or most of it (9%).


President Barack Obama signed into law on Dec. 17, 2010 the Tax Relief, Unemployment Insurance Authorization, and Job Creation Act of 2010, which included a one-year reduction in the workers’ payroll tax.

 

That provision of the tax legislation -which the White House estimated will affect 155 million workers – rolls back the Federal Insurance Contributions or “FICA” tax and Self-Employment Contributions “SECA” tax by two percentage points beginning on Jan. 1 and running through Dec. 31, 2011.


The lower tax rate would boost take-home pay in 2011 by about $800 for individuals with an income of $40,000 per year, for example. Those who earn salaries of more than $106,800 would save a maximum of $2,136 on taxes. Cumulatively, this tax reduction will boost the consumers’ paychecks by approximately $112 billion over the course of
2011 before expiring at the end of the year, according to estimates from Congress’ Joint Committee on Taxation.


“Consumers may change their minds as 2011 unfolds, but this ICSC-GS survey suggests that consumers-who have thought about it-are largely cautious on the use of that extra take-home pay,” said Mr. Niemira. “By yearend 2011, ICSC expects that between $60 billion and $85 billion of the extra take-home pay will enter the spending stream
and provide an aggregate incremental lift to 2011 consumer spending of approximately one-half to three-quarters of a percentage point.”


Founded in 1957, ICSC is the premier global trade association of the shopping center industry. Its more than 55,000 members in over 90 countries include shopping center owners, developers, managers, marketing specialists, investors, retailers and brokers, as well as academics and public officials. As the global industry trade association, ICSC links with more than 25 national and regional shopping center councils throughout the world.