Despite tax policy experts forecasting a lift to most households’ disposable income from the Tax Cuts and Jobs Act, shoppers are much less certain. This divergence between perception and potential reality suggests retailers should curb near-term expectations even as some in the policy environment tout the benefits.
According to a ShopperScape® survey of households in January more than one in three household shoppers were unsure of the impact on their bottom line and only one in five expected to pay fewer taxes. Expectations about the impact of these tax cuts on individual income differs significantly based on income and household type, consistent with the mixed benefits expected from tax reform. (Shopper Insights subscribers can access the full report here.)
A plurality of shoppers is also uncertain of the impact on the U.S. economy. Notably, though, shoppers’ expectations for their individual taxes strongly correlate with their perception of the broader economic impact.
Some of shoppers’ uncertainty is likely to dissipate as tax withholding adjustments are made to some households’ paychecks in the coming months, but those incremental changes may not be enough to prompt households to immediately spend their tax savings. Among those that anticipate they will pay less in taxes on their 2018 income, 40% say they will save the extra cash and 35% indicate they will use it to pay down debt.
The most likely areas in which shoppers indicate they will spend their extra income are vacations and travel, and small treats: spending plans which are likely to benefit services as much or more than goods.
ShopperScape® does suggest that home improvement will see a boost, especially from younger, more affluent households. A smaller share plan to increase their spending on everyday expenses. Still, the shift toward a more discretionary mindset may provide a bigger lift to consumables retailers through spending on higher ticket brands, packaged meals, and snacks.
The disparity between age and income groups in expectations for what tax reform will mean for shoppers’ bottom line suggests retailers and suppliers will need to flex to these differing circumstances in 2018 to gain the most from shoppers.
Unsure what strategies to implement in this divided spending environment?
We have the retail experts, shopper data, and forecasts which will guide you in the right direction.
Please contact us for any requests or questions.
Rachel McGuire, Director
Doug Hermanson, Principal Economist