Will the Payroll Tax Hike Cripple the Recovery?: General Motors Company (GM) and More

Auto sales are also bucking the payroll tax’s impact. January’s sales of light-unit motor vehicles came in at an annual rate of 15.3 million, right around December’s rate and close to the pace seen before the recession. Car sales have plummeted in the wake of the financial crisis, and the payroll tax hike hasn’t cut into momentum at Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM). There are reasons to hold back the optimism here: The average age of cars on the road hit 10.8 years in 2012, a record high that signaled consumers would need to replace aging vehicles one day soon.

Still, Ford predicts strong North American sales in 2013, and increased spending in the auto industry should counteract some of the damage of the payroll tax hike. Cars are an expensive purchase for the average buyer; that Americans are continuing to drive sales in this sector despite the tax increase is a good sign that consumers won’t be hurt as much as some experts touted.

Finally, declining unemployment could further minimize the negative impact of the payroll tax hike — at least on the economy at large. That won’t help consumers much, but with unemployment below 8% and the Fed seeing rates as low as 7.4% by the end of the year, increasing numbers of consumers with jobs and steady income will stimulate the recovery through additional spending.

Not the end of the world for consumers
There are plenty of measures that could stymie the economic recovery: From sequestration to a potential “currency war,” America’s not out of the shadow of the financial crisis just yet. Although the payroll tax hike has taken a chunk out of wages across the country and sent the retail sector into a panic, it doesn’t look like the tax will hurt all that bad in the end. With consumers spending much of the payroll tax holiday’s two years getting a handle on debt and auto sales continuing to shine despite the tax holiday’s expiration, the payroll tax hike won’t be able to kill the economy’s momentum.

The article Will the Payroll Tax Hike Cripple the Recovery? originally appeared on Fool.com and is written by Dan Carroll.

Fool contributor Dan Carroll has no position in any stocks mentioned. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford.

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