US consumers 'to spend $200 billion less if taxes go up on middle-class'

American consumers will spend $200 billion (£125 billion) less if Congress allows taxes to go up on middle-class families, a White House report has concluded.
The report comes as Barack Obama attempts to pressurise Republicans into accepting his terms for reducing America’s $16 trillion debt.

With Congress returning from its Thanksgiving break on Monday, negotiations will now intensify on avoiding the so-called “fiscal cliff”, a set of cuts and tax hikes that would be automatically triggered if a mutually agreed deficit-cutting deal is not reached by Dec 31.

A report by the White House's National Economic Council and Council of Economic Advisers, released this morning, was the latest salvo by Mr Obama arguing that tax cuts for families making less than $250,000 a year should be extended.

At the same time, he wants reduced tax rates for families, individuals and businesses earning more than that to end. The reductions were passed by George W Bush but expired in December 2010, when they were extended for two years with Mr Obama losing a debate with Republicans in Congress.

Now emboldened by his re-election, he is more confident of prevailing.
“The President believes Democrats and Republicans should come together to renew middle-class tax cuts so families and businesses have more certainty at this critical time for our economy,” said a statement accompanying the report.

“If Congress doesn't act… the typical middle-class family will see their taxes go up by $2,200 next year, negatively impacting businesses and retailers across the nation,” it continued.

“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.

“President Obama is committed to growing our economy from the middle out by ensuring a strong, secure, and thriving middle-class.”

The Republicans who control the House of Representatives, have ruled out any compromise. But there are signs among their colleagues in the Senate, which is controlled by the Democrats, that Republican intransigence on tax could be easing.

For the second time in days, a leading Republican, this time Senator Lindsey Graham, edged toward violating something that had been sacrosanct - a longstanding pledge signed by many in his party never to raise taxes.

Strings were attached, such as concessions by Democrats on welfare schemes like health care for the elderly. But his change of heart was a hopeful sign that the Republican leadership is ready to compromise in order to strike a deal.

They have insisted that higher taxes would dampen spending and hiring and investment by business owners. Mr Obama wants the top income tax rate, which now stands at 35 percent, to return to the 39.6 percent it was at before the Bush cuts.

Both Republicans and Democrats are well aware of the need for the country to get its fiscal house in order, as America tries to rein in a huge debt that has been growing bigger by the day and reduce deficit spending.

Sen Graham, speaking on ABC's "This Week" program, said it was fair to ask his party to make sacrifices in turn for Democratic concessions on reducing government spending on welfare.

"When you're $16 trillion in debt, the only pledge we should be making to each other is to avoid becoming Greece, and Republicans - Republicans should put revenue on the table," he said.

He was alluding to Grover Norquist, a powerful conservative political player in the US budget debate, who over the past two decades has persuaded many Republicans to sign a pledge not to raise taxes.

"I want to buy down debt and cut rates to create jobs, but I will violate the pledge, long story short, for the good of the country, only if Democrats will do entitlement reform," Sen Graham said.

His apparent willingness to ignore the no higher taxes pledge came just days after another prominent US senator, Saxby Chambliss, said he would not be not bound by the promise either.