WASHINGTON: On the heels of record sales over the Black Friday weekend, the White House warned that automatic federal tax increases set for next year could hurt the rest of the holiday shopping season and would likely crimp consumer spending by about $200 billion in 2013.
The report released Monday projects that if Congress fails to act and middle-income taxes rise, consumer spending growth could be sliced by 1.7 percentage points and economic growth overall would probably be cut by 1.4 percentage points in 2013. Those are not small numbers given that consumer spending drives about two-thirds of U.S. economic activity and that the American economy has been growing by just a little more than 2 percent since the recovery began in mid-2009.
The report from the White House Council of Economic Advisers looked only at the impending income tax hikes for taxpayers, including a higher alternative minimum tax. These tax increases are part of the so-called fiscal cliff — a combination of mandated fiscal spending cuts and higher taxes that are slated to kick in next year and that on the whole would hit the economy by more than $500 billion and likely send the country back into recession in 2013.
The report is broadly consistent with forecasts by the Congressional Budget Office and leading private economists, and it comes after retailers amassed a record $59.1 billion in sales from Thanksgiving day through Sunday, up from $52.4 billion a year earlier, according to estimates from the National Retail Federation.
The encouraging start of the holiday shopping season reflects the recent strengthening of consumer confidence, which is at a five-year high. Consumers lately have been feeling better as housing prices have begun to rise and job growth has picked up slightly.
But the White House report warned that “the hard-earned rise in consumer confidence will be at risk if the middle-class tax cuts are not soon extended with a minimum of political drama.”
A loss of $200 billion in consumer spending is roughly the amount American families spent on all the new cars and trucks sold in the U.S. in the last year, the report said. And the pain would be felt by producers of goods and services across the board, with $36 billion less spent next year for housing and utilities, for example, and $32 billion less for health care and $26 billion less for groceries and at restaurants.
Talk of compromise on a broad budget deal greeted returning lawmakers Monday, but agreement still seemed distant as the White House and congressional Republicans ceded little ground on a key sticking point: whether to raise revenue through higher tax rates or by limiting tax breaks and deductions.
House Speaker John Boehner, R-West Chester, pressed his case for revenue derived by reducing tax loopholes rather than raising tax rates on wealthy taxpayers, as President Barack Obama insists.
Boehner, voicing the Republican stance, said: “The American people support an approach that involves both major spending cuts and additional revenue via tax reform with lower tax rates.”
At the White House, Obama spokesman Jay Carney reiterated the president’s pledge not to sign legislation that extends current tax rates to the top 2 percent of income earners. “That is a firm position,” Carney said.
Congress and Obama have until the end of the year to avoid across-the-board tax increases that would do away with rates set during the administration of President George W. Bush and restore higher tax rates in place during President Bill Clinton’s administration when the economy was robust and the federal government had a budget surplus.
More bipartisan meetings
White House and congressional leadership aides said Obama spoke separately with Boehner and Democratic Senate Majority Leader Harry Reid over the weekend. The aides would not reveal details of the conversations. Obama last met with the bipartisan congressional leadership to discuss the fiscal cliff on Nov. 16. No new meetings have been announced.
Boehner and other GOP leaders planned to meet Wednesday with members of a bipartisan coalition of former members of Congress and business leaders that has advocated cuts in spending in major health-care programs as well as changes in the tax code to raise more money but also to lower rates.
Obama met with some members of that same coalition earlier this month.
Republicans say that while they are open to revenue increases, Obama also has to agree to reductions in entitlement spending, particularly in massive health-care programs such as Medicare and Medicaid.
Carney on Monday said Obama was open to changes in those programs, but said Obama does not want to address Social Security as part of the fiscal cliff discussions.
“The president has long made clear that he is open to discussions about strengthening Social Security as part of a separate track,” Carney said, adding that Social Security is not contributing to the deficit.