Americans are about to see tax cuts in their paychecks — here’s what they’re likely to do with the extra cash

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iStock/Manakin

  • Tax cuts could increase Americans’ paychecks by February.
  • According to UBS, the extra cash is most likely to be spent on vacation homes, retirement plans, concerts, and travel.
  • Spending on rent could fall as more renters look to buy, UBS said.

Starting in February, many Americans should see a bump in their paychecks, thanks to the recently passed Republican tax cuts.

They’re most likely to spend the extra cash on hotels, funding their retirement plans, concerts, and sports games, according to UBS’ equity strategy team.

“The benefit to the consumer is larger and sooner than we expected,” Keith Parker, the chief US equity strategist at UBS, said in a note on Thursday.

Parker estimated that people would see a 2-4% increase in take-home pay by next month, based on the IRS’ guidance on how much taxes employers should withhold from paychecks by mid-February. By their estimates, the increases would range from $128 for an unmarried person earning $50,000 a year to $270 for someone earning $250,000 a year.

To assess what people may spend that extra cash on, Parker’s team drew on the Bureau of Labor Statistics’ biannual Consumer Expenditure Surveys that gather data on how households at different income levels spend their money. Also, they assumed that the tax cuts would encourage some consumers to want to bump up their spending habits:

1 25 18 tax spending COTD

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UBS

“Other lodging,” which leads the chart, includes hotels, vacation homes, and any other housing that’s outside the city a person normally lives in. Spending on public/other transportation, including airlines, is also expected to rise, if Americans are really going to spend more on holidays. Spending on alcohol is high up on the list, too.

“Interestingly, rental income should decline as more renters look to buy,” UBS said.

That’s interesting, because changes to state and local taxes are expected to weaken the tax incentives for buying a home, particularly in expensive housing markets.

“That said, the impact from this won’t be felt until 2019 when consumers will actually file the taxes,” Parker said. “While it’s possible that those who pay estimated taxes could be affected, this is likely a small percentage of the overall population.”