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Markets wary of higher payroll tax

3:19 PM, Jan 15, 2013   |    comments
AP
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NEW YORK, NY -- Wall Street will soon find out how many Americans really are living paycheck-to-paycheck.

Sure, the USA avoided falling off the fiscal cliff. But most Americans will still get smaller paychecks this year due to higher taxes. While lawmakers didn't raise income taxes on families earning less than $450,000, they let the 2-percentage-point payroll tax holiday expire on Dec. 31, which will take roughly $120 billion out of workers pockets this year.

Less disposable income could pinch consumer spending, and possibly drag down stock prices of companies that depend on consumers, such as retailers, warns David Kelly, chief global strategist at JPMorgan Funds, in a note, "Stress-Testing the American Consumer." Today's reading on December retail sales could offer clues on spending. Analysts expect a 0.2% rise.

"A key question," Kelly says, "is how many households truly live paycheck-to-paycheck in this country?" Put another way: How many people will cut back on spending now that higher taxes have trimmed their pay?

A single person in New York making $50,000 will be cashing a bi-monthly paycheck that's $42 lower than 2012, says Strategas Research Partners. One making $150,000 will see pay decline by $125. Wall Street hopes smaller paychecks will be offset by wealth from rising stock prices and home values. But risks remain. "Investors should be ... careful with stocks leveraged to the middle-class consumer," says Strategas founder Jason Trennert.

Adam Shell, USA TODAY

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