Tax uncertainties threaten holiday sales, report warns

But agreement to avoid the fiscal cliff is still elusive

“On Jan. 1, 2013, there’s a lot more people paying a lot more,” says Representative Eric Cantor.
J. Scott Applewhite/Associated Press
“On Jan. 1, 2013, there’s a lot more people paying a lot more,” says Representative Eric Cantor.

WASHINGTON — Despite signs of robust sales at the start of the holiday shopping season, White House economists warned Monday that the uncertainty of a potential hike in taxes next year for middle class taxpayers under the looming fiscal crisis could hurt consumer confidence at a critical time.

In a report that coincides with Congress’s return after the Thanksgiving holiday, the White House said that if lawmakers don’t halt the automatic increase in taxes for households earning less than $250,000, consumers might curtail their spending.

‘‘As we approach the holiday season, which accounts for close to one-fifth of industry sales, retailers can’t afford the threat of tax increases on ­middle-class families,’’ said the report, by President Obama’s National Economic Council and his Council of Economic Advisers. It comes as Washington dives back into negotiations on how to avoid tax hikes and deep spending cuts scheduled to begin taking effect Jan. 1.


White House and congressional leadership aides said Obama spoke separately with House Speaker John Boehner and Harry Reid, the Democratic Senate majority leader, over the weekend. The aides would not reveal details. Obama last met with the bipartisan congressional leadership to discuss the fiscal cliff on Nov. 16. No new meetings were announced.

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The White House report also says a sudden increase in taxes for middle-income taxpayers would reduce consumer spending in 2013 by nearly $200 billion, significantly slowing the economic recovery.

The figures echo estimates by private forecasters and the Congressional Budget Office.

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 George W. Bush administration and restore higher rates in place during the Clinton administration, when the economy was robust and the government had a budget surplus.

Many middle-income taxpayers would be exposed to automatic tax increases under the Alternative Minimum Tax, which is designed to guarantee a certain level of tax payment by wealthier taxpayers. According to the report, a married couple earning between $50,000 and $85,000 with two children would see a $2,200 increase.


Obama wants the Bush-era rates to remain at their current level for households earning less than $250,000, but he is calling on Congress to increase taxes for families earning more than that. His plan is part of a deficit-reduction package that would increase tax revenue by about $1.5 trillion and reduce spending by a similar amount over 10 years.

Republicans, led by Boehner, have said they are open to including discussions about additional revenue but have balked at any plan that raises tax rates on the wealthy. They argue higher rates would also hit some small businesses, stifling economic growth.

They want changes in the tax code to eliminate breaks and loopholes that primarily benefit the wealthy. Several key Republicans have also said they would not be bound by a no-tax-increase pledge they have adhered to in the past.

The House majority leader, Eric Cantor, said the urgency of finding solutions intensifies as the end of the year approaches. ‘‘If we don’t do anything, on Jan. 1, 2013, there’s a lot more people paying a lot more,’’ the Virginia Republican said.

Cantor reaffirmed the GOP’s opposition to raising tax rates for the wealthy.


‘‘We’ve got to have the president step up and say, here’s my position on how we reform these entitlements and start managing down the deficits,’’ he said.