US personal incomes were boosted by 2.6% in December, the biggest monthly increase since 2004, as high earners sought to beat a New Year tax rise.
December 2012 was marked by accelerated bonus and dividend payments, the US Commerce Department said.
Income tax cuts dating back to George W. Bush’s presidency were due to expire in the New Year as part of the “fiscal cliff” of tax rises and spending cuts.
Despite the boost to incomes, consumer spending rose only 0.2% in the month.
“Personal income in November and December was boosted by accelerated and special dividend payments to persons and by accelerated bonus payments and other irregular pay in private wages and salaries in anticipation of changes in individual income tax rates,” the Commerce Department’s Bureau of Economic Analysis said.
In the event, the tax rises went ahead only for individuals earning more than $400,000, as part of a last-minute deal negotiated between Republicans and Democrats in Congress to avert the fiscal cliff, with the top tax rate rising from 35% to just under 40%.
Capital gains tax also rose on January 1, 2013.
US personal incomes were boosted by 2.6 percent in December 2012, the biggest monthly increase since 2004, as high earners sought to beat a New Year tax rise
The 2.6% increase in incomes in December came on top of an unusually high 1% rise the month before.
Other factors also exaggerated the income increases in the two months, including lump-sum benefit payments handed out in December, and the loss of income for many in the New York area during October because of disruption from Storm Sandy.
Excluding all of these special factors, incomes rose 0.6% in November and just 0.4% in December – in line with the trend increase during the rest of the year.
Most of the windfall income was not spent, with the US personal savings rate increasing from 4.1% of income in November to 6.5% in December.
Indeed, the seasonally-adjusted growth in spending slowed noticeably in the run-up to Christmas, from 0.6% in November to 0.2% in December.
“Consumers finally realized about the tax increase so they pulled back a bit on their spending during the holiday season,” said Sam Bullard, senior economist at Wells Fargo.
Consumer spending is expected to remain weak in the New Year, owing to the impact of a rise in payroll taxes, also agreed as part of the fiscal cliff deal.
Personal incomes are also likely to experience a drag in January and over the coming months, reflecting the fact that most of the increase recorded in December was merely income that had been brought forwards.
As election day approaches, Barack Obama and Mitt Romney continue to reach for issues each other can use as a stick to beat his opponent.
Find out where rivals Barack Obama and Mitt Romney stand on each of the key issues ahead of the debate and where the biggest differences could emerge.
1. Economy
Barack Obama
Signed the American Recovery and Reinvestment Act, known as the stimulus, a $768 billion package of tax cuts and investment in education, infrastructure, energy research, health, and other programmes. Backed a bailout of the US auto industry; signed trade agreements with Colombia, Panama and South Korea.
Mitt Romney
Plan centres on tax cuts, repeal of Barack Obama’s 2010 healthcare reform law and repeal of 2010 Wall Street and banking regulations, and in general the reduction of other regulations he says stifle economic growth. Opposed the auto industry bailout; proposes to reduce federal spending significantly but gives few details about which programmes he would cut.
2. Taxes
Barack Obama
Has cut effective taxes for most Americans; would repeal Bush-era tax cuts for households making more than $250,000 a year; proposes the “Buffet rule” named for billionaire Warren Buffet, which would increase the effective tax rate paid by millionaires.
Mitt Romney
Would make permanent all Bush-era tax cuts, further cut individual income tax rates, eliminate taxes on investment income, repeal the estate tax, and reduce the corporate income tax rate. According to the non-partisan Tax Policy Center, taxpayers at high income levels would see the greatest benefit. Would make up the revenue by closing unspecified tax loopholes.
3. Iran
Barack Obama
Says he is determined to prevent Iran from developing a nuclear weapon; opposes a near-term military strike by US or Israel on Iran’s nuclear facilities; emphasizes need for a diplomatic solution but warns “that window is closing” and has said “all options are at the table”; signed new sanctions against Iran’s central bank, oil revenues and financial system.
Mitt Romney
Says it is unacceptable for Iran to possess a nuclear weapon; says military action “remains on the table” and analysts say he presents a clearer military threat to Iran; would send Navy ships to patrol the Mediterranean and Persian Gulf; calls for more sanctions; would publicly back Iranian opposition groups.
4. National security and war
Barack Obama
Has killed much of al-Qaeda’s leadership, including Osama Bin Laden; pulled US troops out of Iraq; agreed to a $487 million reduction in defence spending over 10 years with congressional Republicans.
Mitt Romney
Would spend heavily on military hardware and invest in missile defence, adding an estimated $100 billion to the Pentagon’s budget, while reducing the civilian defence bureaucracy.
5. Afghanistan
Barack Obama
Initially increased the number of troops in Afghanistan; has begun a draw-down of US troops with the combat mission to end by 2014.
Mitt Romney
Has said his “goal” would be “a successful transition to Afghan security forces by the end of 2014” but pledges to review withdrawal plans and base them “on conditions on the ground as assessed by our military commanders”
6. Healthcare
Barack Obama
Vast 2010 healthcare reform law aims for universal health insurance coverage by requiring individuals who are not otherwise covered to purchase insurance, while restricting insurers’ ability to deny coverage based on pre-existing ailments. The law offers states grants to increase enrolment of poor people in the Medicaid public insurance programme.
Mitt Romney
Would seek repeal of Barack Obama’s health law, though it is modeled on a law he signed in Massachusetts; would return most health policy to the states; would limit doctor malpractice lawsuits; would encourage individuals without insurance to buy it on the private market, including by purchasing it in other states with lighter coverage requirements and lower costs
7. Illegal immigration
Barack Obama
Used executive power to grant legal status to certain young illegal immigrants, bypassing Republicans in Congress. Has dramatically increased deportations of illegal immigrants.
Mitt Romney
Criticizes Barack Obama’s “stopgap” measure on young illegal immigrants but does not say whether he would overturn it. Says the US should encourage migrants to “self-deport” by making life hard for them.
8. Abortion
Barack Obama
Supports abortion rights; appointed two Supreme Court justices who appear to favor abortion rights.
Mitt Romney
Says “My presidency will be a pro-life presidency”, though he supported abortion rights when he was running for governor Massachusetts in 2002. Supports overturning the Roe v. Wade Supreme Court ruling legalizing abortion and allowing states to decide whether abortion should be legal; would strip federal funding from Planned Parenthood women’s health clinics.
9. Energy
Barack Obama
Supports investment in clean energy such as wind turbines and advanced car batteries; tightened car fuel efficiency and emissions standards; blocked development of the Keystone oil pipeline to move oil sands crude from Canada to the Gulf of Mexico, saying the US had not had sufficient time to judge its environmental impact.
Mitt Romney
Would ease regulations hindering coal-burning power plants, oil exploration and nuclear power plant construction; would encourage drilling for oil in the Atlantic and Pacific outer continental shelves; proposes to ease regulations. Pledges to build the Keystone pipeline.
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