White House Report Warns of Coming Tax Hikes

Source: thinkstock

In yet another effort by the Obama administration to put pressure on Republican Party opponents to negotiate a solution to the coming fiscal cliff, the White House today released a report called “The Middle-Class Tax Cuts’ Impact on Consumer Spending & Retailers,” which is attributed to the National Economic Council and the president’s Council of Economic Advisers (CEA). The first page of the report repeats what has become the standard message:

If Congress fails to act, every American family’s taxes will automatically go up – including the 98 percent of Americans who make less than $250,000 a year and the 97 percent 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.

The report also cites recent research by the CEA that shows that allowing the tax hikes to rise and failing to patch the Alternative Minimum Tax (AMT) could cut consumer spending by 1.7% in 2013, which could cut as much as 1.4% from U.S. GDP.

The only item missing is the 2% cut in payroll taxes (Social Security, Medicare, Medicaid). That cut does not appear to be under discussion for an extension. Everyone will get to pay more in payroll taxes next year.

The administration’s proposal is a simple one:

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.

This is essentially the message that Obama campaigned on — and won re-election on. He and his administration can continue to pound that message, safe in the knowledge that if the Republicans do come around to the president’s point of view the Democrats win or if the Republicans refuse, the Democrats win. Plenty of observers have pointed out that holding 98% of U.S. taxpayers hostage to the 2% of richest Americans is not a winning strategy for Republicans.

There’s really nothing new here. The president is proposing that the current tax cuts for incomes of less than $250,000 a year would remain in place for 114 million U.S. families. If an extension is not passed, federal income taxes will rise an average of $1,600 and other tax breaks will disappear, costing middle-class earners about $2,200.

Paul Ausick