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Business

Improving wages may help soften higher payroll tax

WASHINGTON — An improving job market is boosting wages — just as every American worker is hit with a tax increase.

Hourly earnings climbed 0.3 percent, on average, in December for a second month, the biggest back-to-back increase since the economic recovery began in mid-2009, Labor Department figures show. Combined with a longer workweek, that brought the average weekly paycheck to $818.69, up 1.2 percent from October and the steepest two-month gain since February-March 2007, before the recession began.

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But the payroll tax used to pay for Social Security benefits will return to 2010 levels, reducing by $41.67 the paycheck of someone earning $50,000 who is paid twice a month. Yet the higher wages, together with the lowest gasoline prices in almost a year, may lift to household spending.

‘‘Let’s not be too quick to write off the American consumer,’’ said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York. ‘‘Paychecks are a little healthier. The outlook for the consumer is probably a bit brighter than people think.’’

The Bloomberg Consumer Comfort Index rose to an eight-month high in the week ended Dec. 30. For 2012, the index climbed 12.9 points, the biggest annual improvement since 1998.

‘‘Workers are enjoying better income growth, which should further their ability to continue spending,’’ said Russell Price, a senior economist at Ameriprise Financial. ‘‘The economy is really poised to accelerate as long as Washington is able to resolve the remaining issues’’ related to the debt limit and government spending cuts.

The bipartisan agreement Congress passed Jan. 1 makes permanent George W. Bush-era income tax cuts for 99 percent of Americans while letting them end for top earners. The payroll tax cut, designed as a temporary measure to boost the economy in 2011 and extended through 2012, expired. The levy reverts to 6.2 percent from 4.2 percent last year.

Left unsettled was an agreement on public spending as the Treasury bumps up against its borrowing limit.

At such a time, the improvement in income and job growth provides some offset, said Joseph LaVorgna, chief US economist at Deutsche Bank Securities in New York. ‘‘Consumption will be soft in the first quarter, but consumers will not shut down totally,’’ he said. ‘‘We’re seeing decent income gains. That will help cushion some of the hit.’’

The president of the Federal Reserve Bank of St. Louis, James Bullard, predicts the impact of a higher payroll tax will not be huge.

Workers ‘‘are very cognizant of what their paycheck is going to be,’’ he said. ‘‘People knew this was not going to last forever. I think they have got contingency plans in place.’’

An increase in hours is another encouraging aspect of the jobs report, LaVorgna said. The average workweek climbed by six minutes in each of the past two months to reach 34 hours and 30 minutes in December, the Labor Department said. Each six-minute gain is equivalent to about a 300,000 advance in payrolls, he said.

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