The White House warned Monday that the average family will pay $2,200 more in taxes next year if Congress does not freeze tax rates for the middle class, as President Obama begins to build his public case on Monday for extending tax cuts for most Americans while allowing taxes on the wealthiest to rise.
A new White House report says that Americans could dramatically pull back on spending in the crucial holiday season if they expect sharp tax hikes next year, which would cut deeply into take-home pay. That would threaten to interrupt a string of positive data suggesting that Americans are increasingly opening their pocketbooks after years of post-recession caution.
The new report is part of a strategy to pressure Congress to pass legislation already that would immediately extend George W. Bush-era tax cuts for families earning less than $250,000 a year. The Democrat-controlled Senate has already signed off on the legislation.
Now it’s up to the Republican-controlled House to decide whether it will follow. But Republicans have, so far, refused to “decouple” the middle class tax cuts from those benefiting wealthy Americans. The higher-income tax cuts, which affect families earning more than $250,000 a year, are the central point of negotiation in talks between President Obama and congressional leaders over how to avoid the year-end “fiscal cliff,” a series of tax hikes and spending cuts that would suck $500 billion out of the economy next year and likely tip the nation into recession.
The biggest part of the “fiscal cliff” comes from the end of the middle class tax cuts and related provisions, which could take $200 billion out of the economy next year, according to the White House report, which was completed by the Council of Economic Advisers and National Economic Council. Other analysts at the nonpartisan Congressional Budget Office and Tax Policy Center have come up with similar findings.
“While the President is committed to working with Congress to reach compromises on areas of disagreement, there is no reason to delay acting where everyone agrees: extending tax cuts for the middle-class,” a White House statement said. “There is no reason to hold the middle-class hostage while we debate tax cuts for the highest income earners.”
Consumer spending represents the lion’s share share of economy activity, and nervousness about higher taxes could take a bite out of the economy as the year comes to an end. One-fifth of retail sales take place between now and the New Year. Consumer confidence took a deep fall in summer 2011 when the nation flirted with a default over the debt when Congress was paralyzed over questions of tax and spending policy.
But although it remains a significant possibility, deep fears are not yet apparent among consumers. This past weekend, consumers spent $59.1 billion on holiday shopping, 13 percent more than last year.
The White House report warned that letting the middle class tax cut expire — and failing to patch the alternative minimum tax, which applies to many upper-middle class households — could trim consumer spending by 1.7 percent in 2013. That, in turn, would slow economic growth by 1.4 percent.
Even the relatively depressed level of consumer spending in recent years has been goosed by government support — including the payroll tax cut and expanded child tax credits. These measures have lifted the take-home pay of the average family making $50,000 a year by $3,600 over the past four years, according to the White House report.
With staff meeting all last week, Obama and congressional leaders will resume negotiations as soon as this week. Republicans have acknowledged that the wealthy will have to pay more in taxes — in the past, the GOP has been open to about $800 billion more in tax revenue over 10 years. Republicans, however, say they won’t go along with raising additional revenue through higher tax rates. Rather, they say they want to do it by limiting tax deductions that disproportionately benefit rich people.
Obama and the Democrats say that the wealthy should pay closer to $1.6 trillion in new taxes over the coming decade, and they prefer to start by allowing the upper-income tax cuts to expire, raising the top tax brackets from 33 percent and 35 percent to 36 percent and 39.6 percent. Obama says it is not possible to raise enough revenue simply limiting tax deductions.
Democrats, led by Sen. Patty Murray (D-Wash), say they are willing to go over the fiscal cliff if Republicans don’t play ball. At the end of the year, nearly all Americans will experience take hikes.
A new White House report says that Americans could dramatically pull back on spending in the crucial holiday season if they expect sharp tax hikes next year, which would cut deeply into take-home pay. That would threaten to interrupt a string of positive data suggesting that Americans are increasingly opening their pocketbooks after years of post-recession caution.
The new report is part of a strategy to pressure Congress to pass legislation already that would immediately extend George W. Bush-era tax cuts for families earning less than $250,000 a year. The Democrat-controlled Senate has already signed off on the legislation.
Now it’s up to the Republican-controlled House to decide whether it will follow. But Republicans have, so far, refused to “decouple” the middle class tax cuts from those benefiting wealthy Americans. The higher-income tax cuts, which affect families earning more than $250,000 a year, are the central point of negotiation in talks between President Obama and congressional leaders over how to avoid the year-end “fiscal cliff,” a series of tax hikes and spending cuts that would suck $500 billion out of the economy next year and likely tip the nation into recession.
The biggest part of the “fiscal cliff” comes from the end of the middle class tax cuts and related provisions, which could take $200 billion out of the economy next year, according to the White House report, which was completed by the Council of Economic Advisers and National Economic Council. Other analysts at the nonpartisan Congressional Budget Office and Tax Policy Center have come up with similar findings.
“While the President is committed to working with Congress to reach compromises on areas of disagreement, there is no reason to delay acting where everyone agrees: extending tax cuts for the middle-class,” a White House statement said. “There is no reason to hold the middle-class hostage while we debate tax cuts for the highest income earners.”
Consumer spending represents the lion’s share share of economy activity, and nervousness about higher taxes could take a bite out of the economy as the year comes to an end. One-fifth of retail sales take place between now and the New Year. Consumer confidence took a deep fall in summer 2011 when the nation flirted with a default over the debt when Congress was paralyzed over questions of tax and spending policy.
But although it remains a significant possibility, deep fears are not yet apparent among consumers. This past weekend, consumers spent $59.1 billion on holiday shopping, 13 percent more than last year.
The White House report warned that letting the middle class tax cut expire — and failing to patch the alternative minimum tax, which applies to many upper-middle class households — could trim consumer spending by 1.7 percent in 2013. That, in turn, would slow economic growth by 1.4 percent.
Even the relatively depressed level of consumer spending in recent years has been goosed by government support — including the payroll tax cut and expanded child tax credits. These measures have lifted the take-home pay of the average family making $50,000 a year by $3,600 over the past four years, according to the White House report.
With staff meeting all last week, Obama and congressional leaders will resume negotiations as soon as this week. Republicans have acknowledged that the wealthy will have to pay more in taxes — in the past, the GOP has been open to about $800 billion more in tax revenue over 10 years. Republicans, however, say they won’t go along with raising additional revenue through higher tax rates. Rather, they say they want to do it by limiting tax deductions that disproportionately benefit rich people.
Obama and the Democrats say that the wealthy should pay closer to $1.6 trillion in new taxes over the coming decade, and they prefer to start by allowing the upper-income tax cuts to expire, raising the top tax brackets from 33 percent and 35 percent to 36 percent and 39.6 percent. Obama says it is not possible to raise enough revenue simply limiting tax deductions.
Democrats, led by Sen. Patty Murray (D-Wash), say they are willing to go over the fiscal cliff if Republicans don’t play ball. At the end of the year, nearly all Americans will experience take hikes.