Fiscal cliff: White House steps up pressure on GOP to reach a deal (+video)
White House economists warn that unless Congress extends expiring middle-class tax cuts 'without delay,' consumer confidence will take a hit at a critical holiday season for retailers.
Monday morning, the White House put out a report warning that Americans might pull back on spending in the face of a tax increase, threatening the economy. A typical family of four will see a tax increase of $2,200 next year if the Bush-era tax cuts are allowed to expire on the middle class, the report says.
Later on Monday, a top White House economist made a surprise appearance at the daily briefing to reinforce the report.
“One of the many reasons why I think it's important that Congress extend the middle-class tax cuts without delay, without drama, is because it will help to maintain the increase in consumer confidence that we've seen since August of 2011,” said Alan Krueger, chairman of President Obama’s Council of Economic Advisers.
The “fiscal cliff” refers to the $607 billion in tax increases and deep spending cuts that will automatically go into effect at the end of the year if Congress does not act. The Obama administration is adamant that taxes rise on the top 2 percent of taxpayers, while holding taxes steady for the rest.
Mr. Krueger says the White House economic team calculated that if taxes rise on the middle class, consumption would decline next year by about $200 billion.
“To put that in some perspective, that would reduce the growth of consumption by 1.7 percentage points and shave 1.4 percentage points off of GDP growth next year,” Krueger said, noting that consumption accounts for about 70 percent of GDP.
“Our estimates are quite close to estimates of private sector forecasts and also quite close to the Congressional Budget Office's estimate that GDP growth would be reduced by 1.3 percentage points next year if the middle-class tax cuts are not extended,” Krueger said.