Increasing Taxes on Middle-Class Families Will Hurt Consumer Spending

Today, as we move into the holiday shopping season, the National Economic Council and the Council of Economic Advisers released a report called The Middle-Class Tax Cuts’ Impact on Consumer Spending and Retailers. This report provides new analysis on the impact to retailers and consumer spending if Congress fails to act to avoid taxes going up on 98 percent of Americans at the end of the year.

If Congress doesn't act, middle-class families will see their income taxes go up on January 1st. The typical middle-class family will see their taxes go up by $ 2,200 next year, negatively impacting businesses and retailers across the nation. The President has called on Congress to take action and stop holding the middle class and our economy hostage over a disagreement on tax cuts for households with incomes over $ 250,000 per year.

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.

Our economy can’t afford that right now. New analysis by the President’s Council of Economic Advisers (CEA) finds that:

  • 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 Congressional Budget Office.
  • Faced with these tax hikes, the CEA estimates that consumers could spend nearly $ 200 billion less than they otherwise would have in 2013 just because of higher taxes. This reduction of $ 200 billion is approximately four times the total amount that 226 million shoppers spent on Black Friday weekend last year.  As the figure below shows this $ 200 billion reduction would likely be spread across all areas of consumer spending.

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