White House: Middle-Class Tax Hikes to Kill Holiday Spending

The White House makes an appeal to consumers and retailers in a new fiscal cliff economic report.


Procrastinators are likely to fill stores this weekend.

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Just in time for the holiday shopping season, the White House has released a new, consumer-themed volley in its fight to extend tax cuts for the middle class.

Today, the Council of Economic Advisors and National Economic Council released a report detailing how failing to address expiring tax provisions would hurt both consumers and retailers. They estimate allowing rates to rise on households that earn less than $250,000 per year and failing to patch the Alternative Minimum Tax would slow GDP growth by 1.4 percentage points—a significant hit, given the most recent reported GDP growth rate of 2.0 percent. The CEA and NEC also estimate that allowing those tax provisions to expire would cut 2013 consumer spending by $200 billion. Put into context, the report adds, that's more than four times the amount shoppers spent on Black Friday weekend in 2011.

[ENJOY: Political Cartoonists Take On the Fiscal Cliff]

"If Congress does not act on the President's plan to extend tax cuts for the middle-class, it will be risking one of the key contributors to growth and jobs in our economy at the most important time of the year for retail stores," says the report.

Broken down on a household-by-household basis, the expiration could be a hit to families at a time when the economy is already fragile. The report estimates a typical middle-class family of four will see their taxes go up by $2,200 if Congress does not act.

The tax cuts are part of the Bush-era tax cuts set to expire at the end of the year, making them a large part of the "fiscal cliff" of expiring tax provisions and spending cuts scheduled for January 1. The White House would like to extend the tax cuts for the 98 percent of families making $250,000 or less per year. This is a key point of disagreement between the White House and congressional Republicans. The president has repeatedly spoken of making sure the wealthy pay their "fair share" in taxes. However, many congressional Republicans have signed a pledge from Americans for Tax Reform, a group backed by activist Grover Norquist, saying they will not vote for any tax increase.

The report is as much a political document as an economics exercise. The report specifically makes the case for President Barack Obama's recent proposal to extend tax cuts for the middle class for one year without addressing the other areas of the fiscal cliff, like spending cuts in defense and other discretionary areas.

[READ: An Extremely Simple Explanation of the 'Fiscal Cliff']

There are a few signs agreement might be possible. Some Republicans are softening on their refusal to raise revenues, including senators like Tennessee's Bob Corker, South Carolina's Lindsay Graham, and Georgia's Saxby Chambliss. Graham said this weekend that while he is not open to raising rates, he believes that capping deductions could help to raise revenue.

For their part, retailers today responded to the report by reiterating their hopes for a bipartisan agreement on avoiding the fiscal cliff.

"The White House and Congress must work together to address the fiscal cliff, if they fail to do so, the strong opening to this year's holiday shopping season will soon be a distant memory as consumers prepare for a massive tax increase," said Sandy Kennedy, president of the Retail Industry Leaders Association, in a statement.

The National Retail Federation responded by sounding a note of caution. They urged leaders to make a thoughtful proposal that not only averts the cliff but creates lasting reforms and eliminates uncertainty.

"In order to resolve the larger problem with a stagnant economy, Congress and the Administration must take whatever steps necessary to not only avoid the looming 'fiscal cliff,' but to reform the tax code, fundamentally and structurally address federal spending, and reduce the nation's deficit," said NRF president Matthew Shay in a statement.

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