Here’s Why the White House Is Worried About Consumer Spending

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With the fiscal cliff’s tax increases and spending cuts approaching, President Obama’s White House has compiled economic data that shows how large an impact the tax hikes will have on middle-class consumers. According to the report released on Monday by the National Economic Council and Council of Economic Advisers, consumers will spend $200 billion less in 2013 if Congress allows middle-class taxes to rise.

The recently re-elected President Obama has asked Congress to increase taxes on families earning more than 250,000 and allow Bush-era tax rates to remain at their current levels for families earning less than that amount.

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“The president has called on Congress to act now on extending all income tax cuts for 98 percent of American families and not to hold the middle-class and our economy hostage over a disagreement on tax cuts for households with incomes over $250,000 per year,” the report said. “The Senate has passed this bill and the president is ready to sign it.”

The report also calls for an overhaul of the Alternative Minimum Tax, which was set in place decades ago to prevent affluent Americans from using legal tax breaks and loopholes. As the AMT was not indexed for inflation, the system must be updated yearly to avoid taxing millions of less wealthy families. If the AMT is not fixed and middle-class taxes increase, real consumer spending growth could fall by 1.7 percentage points in 2013, the report said.

Not only will consumer spending growth decline, but the “sharp rise in middle-class taxes and the resulting decline in consumption could slow the growth of real GDP by 1.4 percentage points.” Furthermore, the White House economists warned that the uncertainty of the fiscal cliff could hurt consumer confidence during this holiday shopping season as well.

The data released by the White House is consistent with recently published estimates from the nonpartisan Congressional Budget Office.

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