Washington -- Consumer spending could drop by almost $200 billion next year while depressing real consumer-spending growth by 1.7% if middle-class taxes rise in response to the fiscal cliff, according to a report released Monday by a White House economic team.
The report, “The Middle-Class Tax Cuts' Impact on Consumer Spending & Retailers,” by the President’s Council of Economic Advisers, found that the reduction in consumer spending would be about four times the total amount spent by $226 million on Black Friday last year and would likely spread across all areas of consumer spending.
The report noted that a typical family making $50,000 per year has received tax cuts totaling $3,600 over the past four years, and more if it was putting a child through college. President Barack Obama and congressional Democrats want tax cuts for families making $250,000 or more per year to expire while keeping in place those for families making less than that, while congressional Republicans want to keep the upper-bracket tax cuts in place.
In response to the report, the National Retail Federation called for steps to avoid the fiscal cliff — the set of tax increases and spending cuts scheduled to kick in automatically at the beginning of 2013 if Congress and the president fail to reach a deal on spending — but also for reforms of the tax code that would help reinvigorate the economy and address the nation's deficit.
“It is encouraging to see the administration acknowledge that retailers and their customers will be among the hardest hit if our elected officials fail to address ongoing economic uncertainty,” NRF president and CEO Matthew Shay said. “However, just kicking the can down the road by cherry-picking reforms only serves to reinforce the well-placed fears of American consumers and retailers that the status quo will once again rule the day. If brinkmanship overtakes bipartisanship, we will continue to see less capital investment by retailers large and small, stifled job creation and dampened consumer confidence, which will ultimately lead to lower retail sales and potentially another recession.”