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President Obama's team warns of fiscal cliff

6:58 AM, Nov 26, 2012   |    comments
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President Barack Obama. Credit: Getty Images.

David Jackson, USA TODAY

President Obama's economic team is combining Cyber Monday and the Christmas shopping season with a warning about the perils of the fiscal cliff.

A report released Monday details what the White House calls "the impact to retailers and consumer spending if Congress fails to act to avoid taxes going up on 98 percent of Americans at the end of the year."

Fiscal Cliff explainer

White House officials and congressional Republicans and Democrats are negotiating a new budget deal to avoid what they call "the fiscal cliff," a series of automatic tax hikes and spending cuts that take effect in the absence of an agreement; that includes the expiration of the George W. Bush tax cuts.

Obama wants to extend the Bush tax cuts for everyone except Americans who make more than $250,000 a year; the Republicans want to extend all the Bush tax cuts.

Should all the tax cuts expire -- a de facto tax hike for all Americans -- it would hurt the economy, says the new report from Obama's Council of Economic Advisers.

Says the new report:

"-- Allowing the middle-class tax rates to rise and failing to patch the Alternative Minimum Tax (AMT) could cut the growth of real consumer spending by 1.7 percentage points in 2013. This sharp rise in middle-class taxes and the resulting decline in consumption could slow the growth of real GDP by 1.4 percentage points, which is consistent with recently published estimates from the Congressional Budget Office.

"-- Faced with these tax hikes, the CEA estimates that consumers could spend nearly $200 billion less than they otherwise would have in 2013 just because of higher taxes. This reduction of $200 billion is approximately four times the total amount that 226 million shoppers spent on Black Friday weekend last year. As Figure 5 shows, this $200 billion reduction would likely be spread across all areas of consumer spending.

"-- American consumers are the bedrock of our economy, driving more than two-thirds of the overall rise in real GDP over 13 consecutive quarters of economic recovery since the middle of 2009. And 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."

USA TODAY

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