A temporary Social Security tax cut expired this year, reducing Americans' take-home pay. It will cost a typical household making $50,000 a year about $1,000. A household with two high-paid workers will lose up to $4,500. The drop in pay could slow consumer spending.
The Social Security tax cut, in place for two years, was allowed to expire in the deal reached between the White House and Congress to avoid the fiscal cliff.
Most economists expect the higher Social Security tax to bite hardest in the first three months of the year. But after Americans adjust to the sudden cut, its impact should lessen over time.If federal budget issues can be resolved, the economy could start to accelerate. Analysts forecast only modest growth this year of about 2 percent. But they think growth will strengthen as the year goes on. JPMorgan Chase, for example, forecasts that the economy will grow at an anemic annual rate of just 1 percent in the January-March quarter. But as the drag from higher taxes fades and the debt ceiling is resolved, growth could pick up to a decent 3 percent pace by the October-December quarter. Diane Swonk, chief economist at Mesirow Financial, expects housing and other tailwinds to accelerate growth this year â¿¿ as long as budget "shenanigans" don't dampen consumer and business confidence as they did in 2011. "Could we get 3.5 percent growth by the end of this year?" she asks. "If we can get over this budget stuff, absolutely." __ Follow Chris Rugaber on Twitter at https://Twitter.com/ChrisRugaber