White House Warns Of Tax Increase Impact
The Obama Administration today is warning that a failure of Congress to extend the middle class tax cuts would be a hit not only to them, but also to retailers.
A new analysis by the Council of Economic Advisers (CEA) says the increase in federal tax rates set to automatically take effect Jan. 1 if Congress doesn't act, could cut growth of consumer spending by 1.7 percentage points in 2013. The combination of the increase in taxes and a decline in consumption could slow growth of real gross domestic product (GDP) by 1.4 percentage points, the CEA said.
The new White House report also says that consumer sentiment is currently at its highest since 2007 and noted that consumer spending accounts for 70 percent of GDP. According to the report, consumers would spend almost $200 billion less than they otherwise would in 2013 because of tax increases. The CEA said that's about four times the total amount that shoppers spend on Black Friday weekend last year.
The report stressed that when people have more money, they spend more on things like clothing and cars, generating more demand at businesses, leading to more job creation.
"One cannot overstate the contribution of a strong middle class and vigorous consumer spending to building the foundation for jobs and economic growth," it said.
President Obama and Democrats in Congress have proposed extending all income tax cuts that impact families who make less than $250,000 per year. Without a compromise, the White House says the average family will see an increase in taxes of $2,200 annually.
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