White House: Tax-rise risk a yule downer

‘Cliff’ seen hurting retailers

White House Council of Economic Advisers Chairman Alan Krueger speaks to the media about middle-class tax cuts and spending Monday during the daily news briefing at the White House in Washington.
White House Council of Economic Advisers Chairman Alan Krueger speaks to the media about middle-class tax cuts and spending Monday during the daily news briefing at the White House in Washington.

— Despite early signs of robust sales, White House economists warned Monday that the uncertainty of a potential increase in taxes next year for middle-class taxpayers under the looming “fiscal cliff” could hurt consumer confidence during the crucial Christmas shopping season.

In a new report that coincides with Congress’ return after Thanksgiving, the White House said that if lawmakers don’t halt the automatic increase in taxes for households earning less than $250,000, consumers might even curtail their purchases for the rest of the shopping season.

“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,” the report by President Barack Obama’s National Economic Council and his Council of Economic Advisers says.

The report comes as official Washington dives back into negotiations on how to avoid a so-called fiscal cliff of tax increases 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 Democratic Senate Majority Leader Harry Reid over the weekend. The aides would not reveal details of the conversations. Obama last met with the bipartisan congressional leadership to discuss the fiscal cliff Nov. 16. No new meetings have been announced.

Meanwhile, the stock market edged lower in the morning as the outcome of the budget talks remained inconclusive.

Stocks for retailers such as Macy’s, Target and Saks were down in early trading, amid fears that consumers might cut back this season. But the National Retail Federation reported earlier that 247 million shoppers visited stores and shopping websites during the long Thanksgiving weekend, up 9 percent from a year ago. They spent an average of $423, up 6 percent.

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 by 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 administration of President George W. Bush and restore higher tax rates in place during President Bill Clinton’s administration when the economy was robust and the federal government had a budget surplus.

Many middle-income taxpayers also 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 in their taxes.

Obama wants the Bush-era tax rates to remain at their current level for households earning less than $250,000. He is calling on Congress to increase taxes for families earning more than that threshold.

Obama’s plan is part of an overall deficit-reduction package that would increase tax revenue by about $1.5 trillion and reduce spending by a similar amount over 10 years.

Congressional 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. They argue that the higher rates also would hit some small businesses, stifling economic growth.

Instead, they have advocated changes in the tax code that would eliminate tax breaks that primarily benefit the wealthy. Several key Republican lawmakers also have said they would not be bound by a no-tax-increase pledge that they have adhered to in the past.

Grover Norquist, the antitax crusader who urges every new lawmaker to sign his pledge not to ever raise taxes, joked on CNN’s Starting Point on Monday that “we’ve got some people discussing impure thoughts on national television.” But he insisted that the vast majority of Republicans will pay them no mind.

“They all said this two years ago when we were arguing over the debt ceiling limit,” Norquist said. “We cut spending. We didn’t raise taxes. So other Republicans did not listen.”

But Norquist offered a warning to the Republican lawmakers - including the House majority leader - who have suggested they may disregard the pledge.

“If you want to go to your voters and say I promised you this, and I’m breaking my promise, you can have that conversation,” he said. “You’re not having an argument with me. You’ve made a commitment to your voters.”

Tennessee GOP Sen. Bob Corker is circulating a bill claiming $4.5 trillion in deficit savings over the coming decade, including $749 billion in higher tax revenue, by capping itemized deductions at $50,000, a proposal that hits wealthier taxpayers the hardest.

Corker’s plan - shared with the White House and congressional leaders - contains a roster of other budget proposals, including a less generous inflation adjustment for Social Security, and a gradual increase in eligibility age to 68 for Social Security and 67 for Medicare. Upper income earners also would pay more for Medicare.

But at the White House, Obama spokesman Jay Carney reiterated the president’s pledge not to sign legislation that extends current tax rates to the top 2 percent of income earners - households with incomes over $250,000. “That is a firm position,” Carney said.

He said the tax revenue sought by Obama can’t be achieved by simply restricting tax deductions

“Math tells us that you can’t get the kind of balanced approach that you need without having rates be part of the equation,” he said. “We haven’t seen a proposal that achieves that, a realistic proposal that achieves that.”

House Majority Leader Eric Cantor said Monday that the urgency of finding solutions is intensifying 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 on MSNBC.

Cantor said the rapidly approaching deadline accounts for the more serious tone to the debate, but also 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.

“What should be on the table is a recipe to fix the problem and not give away growth,” Cantor said when asked whether Republicans would agree to have increases in tax rates considered.

“We were re-elected to fix the problems, get the economy going again,” he said. “Well,the president got re-elected, and we know at the end of the year taxes are going to go up on everybody, rich and poor alike” if no action is taken to avert the increases.

Information for this article was contributed by Jim Kuhnhenn and Andrew Taylor of The Associated Press; by Zachary Tracer and Richard Rubin of Bloomberg News; and by Michael D. Shear of The New York Times.

Front Section, Pages 1 on 11/27/2012

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