Consumers to spend less if middle-class taxes rise: White House

WASHINGTON Mon Nov 26, 2012 7:00am EST

Women carry shopping bags through Times Square in New York, July 27, 2012. REUTERS/Andrew Burton

Women carry shopping bags through Times Square in New York, July 27, 2012.

Credit: Reuters/Andrew Burton

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WASHINGTON (Reuters) - A White House report says that if that Congress allows taxes to go up on middle-class families, consumers will spend $200 billion less in 2013.

The report by the White House's National Economic Council and Council of Economic Advisers, released on Monday, was the latest salvo by President Barack Obama to encourage lawmakers to extend tax cuts for families making less than $250,000 a year and fix a tax aimed at making sure wealthy people pay a minimum amount.

The newly re-elected Democratic president is negotiating with Republicans in Congress over the "fiscal cliff" - a combination of tax increases and spending cuts that would go into effect next year if the two sides do not reach a deal to stop it.

While the White House and Republican leaders wrangle over raising taxes on the wealthy - a key campaign promise of the president's - Obama would like Congress to pass measures now to lock in lower tax rates for the middle class, the primary constituency he courted in his re-election campaign.

"The president has called on Congress to act now on extending all income tax cuts for 98 percent of American families and not to hold the middle-class and our economy hostage over a disagreement on tax cuts for households with incomes over $250,000 per year," the report said. "The Senate has passed this bill and the president is ready to sign it."

The White House also wants lawmakers to fix the alternative minimum tax, which was set up decades ago so that wealthy Americans could not avoid taxes using legal tax breaks and loopholes. The AMT was not indexed for inflation and has to be updated or "patched" every year to avoid sweeping in millions of less affluent taxpayers.

"Allowing the middle-class tax rates to rise and failing to patch the Alternative Minimum Tax could cut the growth of real consumer spending by 1.7 percentage points in 2013," the report said.

"This sharp rise in middle-class taxes and the resulting decline in consumption could slow the growth of real GDP by 1.4 percentage points, which is consistent with recently published estimates from the Congressional Budget Office."

The CEA estimated that consumers would spend nearly $200 billion less next year as a result of higher taxes. The drop would hurt the retail industry, which has accounted for nine percent of employment growth since the U.S. recession ended in June 2009, the report said.

(Editing by Fred Barbash and Jackie Frank)

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Comments (10)
SeriouslyNow wrote:
Seriously? Consumers will spend less of they have less to spend? Thanks for clearing that up… I was wondering about that. Good thing taxing the wealthy won’t impact retailers. They don’t spend their money on retail. They spend it on employees and investment. Whew… glad retailers are safe.

Look, any time the government ‘increases’ it’s taxation (let’s not call it tax ‘income’ or ‘revenue’), it hurts the private sector somewhere. Does that mean we shouldn’t raise taxes? Nope. But let’s be clear on this, it will impact the economy and will have only a minor impact on the deficit. We have a spending problem. Fix that, or the taxman will be coming after the middle-class next.

Nov 26, 2012 7:04am EST  --  Report as abuse
mountainrose wrote:
that’s because they will have less to spend

Nov 26, 2012 7:05am EST  --  Report as abuse
Um, duh!

Nov 26, 2012 7:16am EST  --  Report as abuse
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