WASHINGTON, USA – US consumer confidence plunged in January to its lowest level in more than a year, reflecting higher Social Security taxes that left Americans with less take-home pay.

The Conference Board yesterday said that its consumer confidence index dropped 8.1 points in January from December to a reading of 58.6, the lowest since November 2011.

The index has declined for three straight months since hitting a nearly five-year high of 73.1 in October 2012. It’s still above the post-recession low of 40.9 reached in October 2011.

Conference Board economist Lynn Franco said the tax increase was the key reason confidence tumbled in January, making Americans less optimistic about the next six months.

For a worker earning US$50,000 a year, take-home pay will shrink this year by about US$1,000.

The index fell sharply in December as congressional Republicans and President Barack Obama moved closer to the fiscal cliff without reaching a resolution on sharp spending cuts and tax increases.

Congress and the White House ultimately struck a deal on January 1 to prevent income taxes from rising on most Americans. But they delayed the spending cuts for only two months. And they allowed a temporary cut in Social Security taxes to expire.

The survey was conducted through January 17, at which point most people began to realise their paychecks were lighter.

Consumers were less confident in January than December about current economic conditions, the survey showed. And their outlook for the job market also grew more pessimistic.

Most economists attributed the drop in confidence to the increase in payroll taxes.

Joshua Shapiro, chief US economist at MFR, also noted that sharp divisions in Washington over spending cuts and tax increases likely made consumers less optimistic about the economy, too.

“All the negative news about the dysfunction in Washington surrounding the fiscal cliff negotiations contributed to the December plunge, and ongoing shenanigans concerning the debt ceiling and fiscal sanity in general continued to weigh in January,” Shapiro said.

Taxes are rising at a time when wages and salaries are barely growing. The combination is expected to hurt consumer spending and slow economic growth.

Many economists predict economic growth slowed in the October-December quarter to an annual rate of around 1 per cent. That would be much weaker that the 3.1 per cent rate in the July-September quarter. Most economists don’t expect growth to pick up much in the first quarter of 2013.

The decline in confidence comes as the economy is signalling improvement elsewhere.