The Death Knell of the Economic Recovery

financialsense.com / By Clif Droke / January 7, 2013

Call it the “shot heard round the world.” Its aim was ostensibly to reduce the U.S. budget deficit, its effect was tantamount to a bullet in the chest of the consumer recovery.

Last week the U.S. working class was hit with a significant payroll tax increase, a blow which couldn’t have occurred at a worse time. Just as the economic recovery was starting to gain some traction, our elected officials took the proverbial wind out of its sails by raising taxes. A tax increase is the last thing needed when the economic undercurrents are deflationary, as they are now. This measure will eventually beget even more deflation as consumers reign in spending once they see their paychecks diminished courtesy of the U.S. Congress.

Reading through scads of news articles and blog postings pertaining to the tax hike, I’m amazed at the lack of outrage among its victims. Few seem to realize the enormity of the situation: a $100/month paycheck cut is coming for many wage earner in the U.S. this year, yet few seem to grasp the implications.

To put into perspective just how much $100 a month is for the typical American, let’s look at the expected cost of living increases for the coming year. Along with smaller paychecks because of Social Security and healthcare deductions, Americans also face higher grocery bills. Retail food costs for 2013 are projected to rise 4 percent, according to AOL Daily Finance. That adds up to about $40 a month for the average family.

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