The White House released a new warning on the "fiscal cliff" and the effects of automatic tax increases in 2013 on holiday shopping, following record sales on the season's biggest shopping day-Black Friday.
The warning, released on Cyber Monday, stated that President Obama's Council of Economic Advisors (CEA) predicts that consumer spending growth could be cut by 1.7 percentage points if middle-class tax rates rise and Congress fails to work on the Alternative Minimum Tax. According to the report, "consumers could spend nearly $200 billion less than they otherwise would have in 2013 just because of higher taxes."
The Los Angeles Times reports that these statistics are crucial since consumer spending leads about two-thirds of the U.S. economy activity. "Consumer spending is the largest single component of our economy, accounting for roughly 70 percent of Gross Domestic Product (GDP)," the report stated.
According to the White House press release, President Obama would like Congressional Democrats and Republicans to work together towards renewing middle-class tax cuts for Americans making less than $250,000 per year.
On November 14, Obama stated, "We should not hold the middle-class hostage while we debate tax cuts for the wealthy. We should at least do what we agree on, and that's to keep middle-class taxes low. And I'll bring everyone in to sign it right away so we can give folks some certainty before the holiday season."
If Congress fails to act, the report warned, middle-class families will see their income taxes rise up by $2,200 by January 1. This would affect 98 percent of Americans who make less than $250,000 per year and 97 percent of small business that make less than $250,000 a year, the press release stated.
The CEA's report is consistent with predictions by the Congressional Budget Office and leading private economists, the LA Times reported. It came just days after retailers gained $59.1 billion in sales from Thanksgiving through Sunday, the newspaper stated.
"Over the course of this year, American consumers are on pace to spend around $5 trillion on retail sales," the report added. The report also stated that consumer sentiment is at its highest level in more than five years, which means that consumers are more willing to spend money.
However, the White House warned, "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."