Threat of tax hikes could lower consumer spending during holidays: U.S. economists
The Associated Press
Published Monday, November 26, 2012 9:23AM EST
Last Updated Monday, November 26, 2012 5:28PM EST
WASHINGTON -- White House economists in the U.S. warned Monday that the uncertainty of a potential hike in taxes next year for middle-class taxpayers under the looming fiscal cliff could hurt consumer confidence during the crucial Christmas holiday shopping season.
In a new report that coincides with Congress' return after the Thanksgiving holiday, the White House says that if lawmakers don't halt the Jan. 1 automatic increase on in taxes for households earning less than $250,000, consumers might curtail their shopping in advance.
Across-the-board tax increases and deep spending cuts will take effect, with the possibility of driving the country into another recession, if President Barack Obama and a divided Congress can't reach a deal by the end of the year to avoid them.
The holiday shopping season started in earnest on Thursday, the Thanksgiving holiday.
"As we approach the holiday season, which accounts for close to one-fifth of industry sales, retailers can't afford the threat of tax increases on middle-class families," the report says.
The study by Obama's National Economic Council and his Council of Economic Advisers also says a sudden increase in taxes for middle-income taxpayers would reduce consumer spending in 2013 by nearly $200 billion, significantly slowing the economic recovery.
The figures echo estimates by private forecasters and by the Congressional Budget Office.
Congress and Obama have until the end of the year to avoid across-the-board tax increases that would do away with rates set during the administration of President George W. Bush and restore higher tax rates that were in place during President Bill Clinton's administration, when the economy was robust, the federal government had a budget surplus and the country was not at war.
According to the report, a married couple earning between $50,000 and $85,000 with two children would see a $2,200 increase in their taxes.
Obama wants the Bush-era tax rates to remain at their current level for households earning less than $250,000. He is calling on Congress to increase taxes for families earning more than that threshold.
Obama's plan is part of an overall deficit reduction package that would increase tax revenue by about $1.5 trillion and reduce spending by a similar amount over 10 years.
Congressional Republicans, led by House Speaker John Boehner, have said they are open to including tax revenue in any budget package but have balked at any plan that raises tax rates on wealthier taxpayers. They argue that higher rates would also hit some small businesses.
House Majority Leader Eric Cantor said Monday the urgency of finding solutions intensifies as the end of the year approaches.
"If we don't do anything, on Jan. 1, 2013, there's a lot more people paying a lot more," the Republican said on MSNBC.