Americans saw their income drop so dramatically in January that it marked the deepest one-month decline in 20 years.
Personal income decreased by $505.5 billion in January, or 3.6%, compared to December (on a seasonally adjusted and annualized basis). That's the most dramatic decline since January 1993, according to the Commerce Department.
It's something of a combination of one-time events, though.
In doing so, they helped their high-income shareholders (individuals earning at least $400,000 a year, or married couples earning $450,000) avoid paying higher taxes on their gains. In their last-minute fiscal cliff deal, lawmakers decided to raise dividend tax rates for high-income households from 15% to 20%.
The payroll tax cut's expiration also played a role in January's drop, because most workers have to pay 2 percentage points more in taxes this year. The Commerce Department's "personal income" calculation subtracts out individuals' contributions to government social insurance programs like Social Security, which are funded by the payroll tax.
Excluding those special factors, the Commerce Department estimates that after-tax income actually increased 0.3% in January.
Meanwhile, economists are closely watching consumer spending, which accounts for about two-thirds of the U.S. economy.
They're waiting to see how the payroll tax hike will affect the broader recovery.
Spending increased $18.2 billion, or 0.2%, in January. Some economists, like Chris Christopher, Jr. of IHS Global Insight, called that "anemic" and pointed to weak retail sales at low-end and mid-tier retailers as proof that consumers are being squeezed.
The payroll tax cut "hurt many Americans where it counts -- in their pocket books," he said.