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.
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.
A $200 billion decline in consumer spending would be the equivalent of four times what Americans spent on Black Friday weekend last year, or roughly what Americans spent on all new cars and trucks sold in the United States in the last year, the report said. The scaled back spending would stretch across sectors from groceries and gasoline to health care and recreation.
The report was broadly consistent with a similar study of the effects of the so-called fiscal cliff released by the nonpartisan Congressional Budget Office earlier this month. The White House released it as part of an effort to turn up the pressure on Congress, which has barely a month to reach an agreement with President Obama on how to avoid the tax and spending changes or risk sending the nation back into recession.