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The impact of middle-class tax cuts on retailers and consumer spending

Small Business Saturday President Obama and his daughters visit One More Page Books in Virginia on Small Business Saturday.

A new report from the National Economic Council and the Council of Economic Advisers takes a look at what the consequences could be for retailers and consumer spending if Congress doesn't stop taxes from going up for most working families and small businesses at the end of the year.

According to the report:

If Congress fails to act, every American family’s taxes will automatically go up—including the 98% of Americans who make less than $250,000 a year and the 97% of small businesses that earn less than $250,000 a year. A typical middle-class family of four would see its taxes rise by $2,200.

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. There is no reason to hold the middle class hostage while we debate tax cuts for the highest income earners.

Our economy can’t afford that right now. New analysis by the President’s Council of Economic Advisers (CEA) finds that:

  • 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.

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.

For more information on why the President is urging Congress to act now, read the full report.

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