Americans could spend nearly $200 billion less next year on cars, clothes, furniture and other consumer products than they would otherwise if automatic tax increases take effect as currently scheduled, the White House warned in a report issued Monday morning.The Senate has already passed legislation that would continue current tax rates for all income below $250,000 and President Obama has said he would sign it, but House Republicans thus far have refused to act. The reason is simple: passing the Senate legislation would decouple the Bush tax cuts for the wealthy favored by the GOP from the middle-class tax cuts favored by Democrats and the president. Decoupling the tax cuts would take away the GOP's ability to hold the middle-class tax cuts hostage, effectively guaranteeing that the tax rate on income above $250,000 would return to Clinton-era levels.
Such a crimp on demand would curb the growth of real consumer spending by 1.7 percentage points in 2013 and slow the growth of the overall economy by 1.4 percentage points, according to the report prepared by the President’s Council of Economic Advisers.
The report focused entirely on the impact of Bush-era tax cuts expiring for middle-class taxpayers at the end of the year and a failure to adjust the Alternative Minimum Tax so that it does not suddenly apply to millions of taxpayers who have not paid it in the past. It made no effort to look at the economic impact of deep military and domestic spending cuts also due to take effect in the new year.
Republicans say they supports extending middle-class tax cuts and are willing to raise revenue from higher income taxpayers, but unless and until they end the hostage crisis and agree to decouple the tax cuts, there's no reason to take them seriously.