AUDIE CORNISH, HOST:
The payroll tax cut was originally designed to put more money in people's paychecks so they'll spend more and boost the economy. NPR's Jeff Brady talked with holiday shoppers outside Philadelphia to see if that's working.
JEFF BRADY, BYLINE: In downtown Glenside, Pennsylvania, the shopping district is in transition. Near the high-end luggage store and a gift shop is a longtime pest control business with cockroaches and other bugs on display. Still, there are plenty of shoppers here with opinions.
KYLE CONGDON: My name is Kyle Congdon. I'm from Carbondale, Pennsylvania and I go to Arcadia University.
BRADY: So, there's been extra 2 percent in your paycheck over the last year. Did you notice it?
CONGDON: I honestly did not notice it, but I'm glad it's there.
BRADY: The tax cut boosted the average family's take-home pay by about a thousand dollars last year. But during an afternoon of talking with shoppers, none were aware of this.
JOEL SLEMROD: Well, by the way, we find the same thing in our research.
BRADY: Joel Slemrod is an economics professor at the University of Michigan. He also researched what taxpayers did with the extra money. A few said they spent it, about half said they used it pay off debts and a third said they saved it.
SLEMROD: They see their assets have fallen, their debt has increased so they take advantage of higher disposable income to cut back on their debt or add a cushion to their savings.
(SOUNDBITE OF DOOR CLOSING)
BRADY: Back with our shoppers near Philadelphia, it's not too difficult to find one of those savers. Mathew Danph stopped by a video game store.
MATHEW DANPH: Anything I have left over at the end of the month in the budget is saved. So, if there was 10 or 20 extra dollars in there, it was probably saved rather than spent.
BRADY: Even though Danph isn't complying with the theory behind the payroll tax cut - to get people to spend more and boost the economy - he supports extending and maybe even expanding it.
DANPH: More money sounds nice, whether it's saved or spent. I mean, for me, I'm probably going to save it but it sounds like a lot of people would spend it and seems like it would be beneficial for the economy.
BRADY: Just down the street in a gift shop called Sweet Magnolia, shopper Marlena Santoyo says expanding the tax cut now could help small businesses like this one.
MARLENA SANTOYO: I think especially, come to think of it, now at this season, Christmas or Hanukah, that, yes, some people would be inclined to do a bit of shopping.
BRADY: That assumes the tax cut is expanded. But what if the reverse happens and shoppers learn the tax cut will end soon and families will have less to spend next year. Here's Howard Gleckman of the Tax Policy Center in Washington.
HOWARD GLECKMAN: I think if people believe that this money is going to be taken away from them, they're likely to be a little more cautious in their spending behavior over the holidays.
BRADY: That prospect has business owners in this neighborhood hoping Democrats and Republicans will be able to reach agreement on at least extending the tax cut into next year. Jeff Brady, NPR News, Philadelphia.
(SOUNDBITE OF MUSIC)
CORNISH: You're listening to NPR News.
NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.