CarriageTowneNews.com, Kingston, NH

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January 11, 2013

Here's why your paycheck just shrank

(Continued)

WASHINGTON —

But the open question for the economy in 2013 is whether Americans adjust differently when their paychecks have a tax-induced decline than they did when they received a bump.

In terms of consumer psychology, behavioral economists speak of "loss aversion," a tendency of people to be much more bummed out when they think they have lost something that belonged to them than if they gain it. A child might be much more upset to have a cookie taken away from them than they are happy to be given a cookie.

It is possible that as Americans learn of their lower take-home pay — either from reading news accounts around the fiscal cliff deal last week, or from opening their first paycheck of the year — they will adjust their entire spending plans for the year, which could make January a rough month for retailers and the economy as a whole.

In a new analysis, Goldman Sachs economists ran a number of different economic models to assess the impact of higher taxes from the fiscal cliff deal on the economy in 2013 (the payroll tax is the biggest, but they also included higher income tax rates on households making over $450,000 and some smaller tax provisions that reduce deductions for those making over $250,000). Those different models — Goldman's in-house macroeconomic model, one used by the Federal Reserve, and analysis drawn from work by economists Christina and David Romer examining how consumption patterns have adjusted in the past to changes in tax policy — all find a hit to growth of around one percentage point in the first half of the year. Given that growth has been bouncing around at about 2 percent since the recovery began in 2009, that is a big enough drag to make it feel like another sluggish year.

It was always clear that the payroll tax holiday would have to disappear eventually; keeping it on would endanger the finances of the Social Security system. But the fact that it is disappearing at a time unemployment is still very high, growth is slow, and no other policies such as new infrastructure investment were implemented to try to offset the effects could mean that payday isn't a fun day for American workers.

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New England News
Obituaries
  • Alan J. Walker, 68

    Kingston, N.H. — Mr. Alan James Walker, 68, passed away peacefully at his home on July 8, 2014, after a long, brave battle with cancer.

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    14 hours
  • James Reese

    Raymond, NH — James Edwin Reese, 74, passed away on Wednesday, July 16, 2014, surrounded by his family and friends at his home in Raymond, N.H. He was the son of John and Ruth Reese, born on Oct. 29, 1939 in Edensburg, Pa. James graduated from Central Cambria High School in Pennsylvania before proudly serving in the U.S. Army as a food inspector. His military service was followed by 31 years with the U.S. Department of Agriculture as a meat inspector. Mr. Reese was an avid outdoorsman and spent much of his time fishing, camping and hiking in the White Mountains. He became involved in the Boy Scouts and enjoyed passing on his vast knowledge of the wilderness to others. Throughout his retirement years he enjoyed woodworking, raising rabbits and working in his garden.

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  • Velma J. Reid

    South Hampton, NH — Velma J. Reid, 80, died peacefully on July 17, 2014 at Exeter Hospital, surrounded by family. She was born in Haverhill, Mass. on June 8, 1934, the daughter of the late George C.W. and Alta I. (Kimball) Haynes. A graduate of Haverhill High School, Velma worked at Western Electric until she had children. For years, she was a devoted “stay-at-home” mom who raised her three children in a loving, nurturing environment. She later worked various manufacturing jobs until her retirement. After retiring, she volunteered her time at various organizations and was very involved at the East Kingston Community United Methodist Church as a member of the women’s guild, assisting with the holiday fair, and helping out wherever she could. She had a passion for animals, and would donate money, food, and blankets to the NH SPCA. She loved to sew and made a personalized quilt for every member of her family. She was also a member of the “Ugly Quilts” group, which made blankets and sleeping bags for the homeless using recycled fabric. She is survived by her husband, Clyde Reid of South Hampton, N.H.; daughter, Pam Eaton of Danville, N.H.; son and daughter-in-law, Douglas and Kim Reid of Raymond, N.H.; daughter, Shirley Reid of South Hampton, N.H.; two sisters, Gwen Stuart of Haverhill, and Norma Taplin of Dracut; four grandchildren, Cheryl and Marc Welch, and Kristen and Joshua Reid, and several nieces and nephews.

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  • Carleen A. Knowlton, 80

    Danville, NH — Carleen A. (Rhoadhouse) Knowlton, 80, of Danville and formerly of Hampstead, died on July 7, 2014, at her home.

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  • Miriam O. (Graham) Graham, 84

    Kingston, NH — Miriam O. (Graham) Graham, 84, a resident of Kingston since 2001, and former longtime resident of Grafton, Mass., died peacefully, surrounded by her family, on July 11, 2014, following a long illness.

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