Failure To Avert Fiscal Cliff May Cause $200 Billion Loss In Consumer Spending: Report
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US consumer spending is likely to decline by $200 billion in 2013 if automatic tax increases – affiliated with the so-called ‘fiscal cliff’ – come into effect at the beginning of next year, said a report commissioned by the White House on Monday, as pressure mounts on Congress to reach a budget deal compromise by December 31st.
US consumer spending is likely to decline by $200 billion in 2013 if automatic tax increases – affiliated with the so-called ‘fiscal cliff’ – come into effect at the beginning of next year, said a report commissioned by the White House on Monday, as pressure mounts on Congress to reach a budget deal compromise by December 31st.
The report, produced by the President’s Council of Economic Advisers and the National Economic Council, warned that 98 percent of Americans would see their taxes go up next year; while the average middle-class family of four may see tax increases of up to $2,200.
The report focused entirely on the impact of Bush-era tax cuts expiring for middle-class taxpayers at the end of the year and a failure to adjust the Alternative Minimum Tax so that it does not suddenly apply to millions of taxpayers who have not paid it in the past.
“Allowing the middle-class tax rates to rise and failing to patch the Alternative Minimum Tax (AMT) could cut the growth of real consumer spending by 1.7 percentage points in 2013. 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 (non-partisan) Congressional Budget Office,” the report warned.
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[quote]”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 added. “The Senate has passed this bill and the president is ready to sign it.”[/quote]Jason Furman, the Principal Deputy Director of the National Economic Council, added in a White House Blog that there was “no reason” why Congress would delay on extending tax cuts for the middle-class, despite partisan disagreements for other areas of the budget deal – including raising taxes for the wealthy.
[quote]“While the President is committed to working with Congress to reach compromises on areas of disagreement, there is no reason to delay acting where everyone agrees: extending tax cuts for the middle-class. There is no reason to hold the middle-class hostage while we debate tax cuts for the highest income earners.”[/quote]Related: Will Congress Dithering Condemn Future Generations Of Americans?: Mohamed El-Erian
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According to AFP on Tuesday, President Barack Obama has now made Treasury Secretary Timothy Geithner his lead White House negotiator in the budget talks. A $200 billion decline in consumer spending would be the equivalent of four times what Americans spent on Black Friday weekend last year, or roughly what Americans spent on all new cars and trucks sold in the United States in the last year, the report said.
Read: The Full Report Here
