Taxes Go Up, Consumer Spending Goes Down

Gee, color me surprised....NOT.

How anyone can deny that taxes have an effect on the economy need only take a look at what happened when payroll taxes went up 2 percentage points on January 1st – consumer spending fell.

As the article linked explained, the tax increase will “ding a household with $65,000 in annual income $1,300 this year.”

According to the Wall Street Journal, companies like WalMart, Burger King, Kraft Foods, and Tyson Foods have said they are lowering earnings forecasts and "adjusting sales and marketing strategies, expecting consumers with smaller paychecks to dine out less and trade down to less expensive purchases."

I don't know about you, but $1,300 is a big chunk of change in this household. For us that means we won't be replacing our never-really-worked-all-that-great and ailing clothes drier or making some needed repairs to the exterior of The Manse any time soon.

While in the past we have dined out a couple of times a month, that has fallen off to almost nothing. I haven't stopped off at the local diner for breakfast since the week of Christmas and we rarely order out for Chinese food or pizza anymore. Some of this can be attributed to rises in fuel prices – we have to spend the money we would have used for some of these activities to fill the gas tanks in our vehicles and the propane tank at The Manse. (Yes, we heat with wood, for the most part. But our water heater runs from propane and we don't have nearly as much firewood as we usually would as we didn't buy as much as we have in the past.) Some can be attributed to the rise in prices of other goods or services without a concomitant raise in wages.

With the demand by the President to raise taxes even more, how can there not be the side effect of even less consumer spending? Pulling hundreds of billions of dollars out of the economy to feed the always voracious federal government will make the problem worse. While the argument will be made by the left that all of that money will spent which still helps the economy, it isn't being spent in the right places and, of course, the government will take its cut. That means that for every dollar the government takes in, less than a dollar's worth will be spent on things that will 'stimulate' the economy. This is not how one expands economic activity. But to listen to the President and his leftist cronies, that's all that's needed to help the economy recover.

Some of these folks need to take a macroeconomics course and get a clue. That, and they should look up 'Laffer Curve'. But we know they won't because, after all, they know better than the rest of us.

Yeah. Right.