Payroll Tax Cuts, More Jobs Hike Income, But Local Taxes, Inflation Weigh

An increase in the number of breadwinners, raises for military personnel and the federal payroll tax extension lifted average U.S. personal income in January by 0.3 percent, but higher taxes and price inflation meant the increase didn't offset higher prices, the Commerce Department said Thursday.

U.S. personal income, an economic datapoint used to gauge where consumer confidence in the economy might be going, rose by $37.4 billion, or 0.3 percent. But the rise in disposable income, which takes into account personal current taxes, was $14.1 billion, or 0.1 percent.

Those numbers missed analyst estimates compiled by MarketWatch, which had expected gains of 0.4 percent in personal income.

The personal income figure also compares unfavorably to the 0.2 percent increase in January in the price of a basket of goods considered exemplary of average consumption by the Commerce Department.

Personal income took a hit from an increase in current taxes, estimated to have taken a $23.2 billion bite out of consumers' wallets in January. That increase occurred solely at the state and local level and would have been worse had the payroll tax cut and other federal tax benefits not contributed an estimated $11.8 billion in refunds to the mix.

Indeed, without the federal largesse of that benefit, and an additional $1.8 billion in raises to military personnel, taxes alone would have wiped out the nearly $25.5 billion in gains to private payroll earnings.