Walmart blamed the state of the economy and the January payroll tax increase in particular for weak sales on Thursday as it reported lower-than-expected earnings and cut its profit forecast.
“The 2 percent payroll tax increase continues to impact our customer,” Walmart U.S. president and CEO Bill Simon said in a statement accompanying the company’s second-quarter earnings release. The retailer, the largest in the U.S., saw same-store sales fall 0.3 percent in the quarter.
The payroll tax taken from employees’ paychecks was cut from 6.2 to 4.2 percent in 2010 as part of a deal between President Obama and congressional Republicans. It was intended as a stimulus measure to counteract the effects of the recession, and was re-upped through 2012. The measure expired at the beginning of 2013 along with the rest of the expiring tax and spending provisions that made up what was referred to as the fiscal cliff.
Although consumer spending and retail sales have grown steadily, if not rapidly, during 2013, large retailers like Walmart may have been disproportionately hurt by the payroll tax hike’s effects on middle-class families.
The payroll tax cut amounted to an extra $1,000 of spending money for a typical family making $50,000 a year, according to the Tax Policy Center. Because payroll tax applies only to income up to $110,100, the cut was progressive, letting lower-income workers keep higher percentage of their wages.
A study by the Federal Reserve Bank of New York published in January found that consumers spent more of the tax cut than expected, and that they anticipated reining in spending sharply when the rate increased back to its normal level.
Walmart’s disappointing sales could reflect the payroll tax hike biting into its customers’ budgets, although the company also listed a number of other factors slowing down sales.
And if Walmart is right that higher taxes are hurting its bottom line, it remains to be seen whether its struggles will affect the broader economy. The Economic Policy Institute, a left-of-center think tank, estimated in September that an extension of the holiday would have added up to a million jobs at a budgetary cost of $115 million.