Posted 3/4/2013 12:00 am
Updated 9 months ago
The Wall Street Journal reported it. Wal-Mart and other retailers are preparing for it. And consumers are feeling it. “It” is the expiration in January of the payroll tax cut, which is now shaving 2 percent off the top of most consumers’ take-home pay. That’s real money coming out of the pockets of consumers every month, at a time when a sluggish economy is attempting a snail’s-pace recovery, an economy that can improve through consumer spending.
As part of the compromise to avoid the fiscal cliff, the president and Congress agreed on allowing the Bush-era tax cuts to expire, ostensibly on the wealthy, but also on payroll taxes, which affect all working Arkansans and their paychecks. The result is a $1,300 reduction in annual income for a $65,000-a-year household. The total amount of cash out of consumers’ hands in 2013 alone is estimated at $110 billion.
Trading Down, Delaying Purchases
Economic uncertainty coupled with less disposable income, which has been exacerbated by higher gas prices means consumers have been trading down to lower-price retailers. For instance, more affluent consumers have been trading down to discounters like Wal-Mart, while discount customers have been moving from Wal-Mart to the dollar stores.
Likewise in the fast-food or “quick-service restaurant” category, where value or dollar menus are now the focus of marketing and advertising messages, rather than higher-priced sandwiches, drinks and specialty items.
Planned purchases of higher-cost items, such as electronics and appliances, are also being delayed until family budgets can better adjust to the new reality of less money in the checking account at month’s end.
Tax Refunds No Help
The National Retail Federation reported at the end of February that it recent survey of tax filers — sampling some 5,100 consumers — revealed over a third had already filed their taxes. When asked how those who expect a refund would spend the refund, 37.2 percent said they would use the money to pay down debt, 44 percent will put it into savings, and 29.7 percent plan to use it for everyday expenses.
Pay Attention to the Consumer
All of this points to the need for greater attention by lawmakers to consumer needs. While social issues are important to many, the ability to provide food, clothing, medical care, everyday household items and occasional discretionary spending on special purchases are a concern of all.
While Congress lurches from one self-made crisis to another, our own Arkansas Legislature is in session crafting bills that tend so far to be addressing non-economic issues, save the 500 or so jobs that may be created by a new Mississippi County steel mill.
Grow the Economy
What is needed now is a focus on what will grow the Arkansas economy and create jobs. And initiatives that will impact cities and counties and regional communities so Arkansans can realize the benefits of well-placed investments on such things as statewide infrastructure — infrastructure designed to better connect one market to another.
In a state like Arkansas, improved infrastructure helps break down economic isolation in more rural areas of the state due to the lack of convenient access to a major roadway, four-lane highway or an interstate corridor. A greater interchange of commerce across the state eases consumers’ ability to locate, compare and shop for goods and services outside their immediate trade area. And that works both ways, as the reduced cost of transportation because of greater efficiency leaves more money in the pockets of consumers, which can then be used at local businesses. And when local businesses are supported through greater consumer spending, general state tax collections increase, thus allowing the state to fund programs helping us all.
We cannot rely on the federal government for those investments that we in Arkansas can make for ourselves. I’m not using the word “investments” as a code for tax increases, but rather investments through the proper allocation of capital that puts money back into the hands of consumers and into the coffers of state government for the common good, without raising taxes.
The Legislature will be in session for a little while longer. Let’s not miss this opportunity to aid the consumer.
Craig Douglass is a Little Rock advertising agency owner and marketing and research consultant. He is president of Craig Douglass Communications Inc.