The US government believes that consumer spending in the country could fall if the Congress and government cannot agree to a deal to avert the impending ‘fiscal cliff.’
According to a report compiled by the White House Council of Economic Advisers (CEA) estimates consumer spending could decline by $200bn if the tax cuts for middle-income taxpayers elapse at the end of the year.
The Obama administration believes that fall in consumer spending will adversely impact not just the retail sector but the entire economy, possibly dragging it back into recession.
Tax liabilities for the middle class will expectedly leave lesser disposable income, if the spending cuts implied by the Congress take shape leaving old tax reductions to expire, said the White House.
Rise in middle-class taxes and the resulting decline in consumption could slow the growth of real GDP by 1.4%.
The Obama Administration believes that the possibility of higher taxes in 2013 could wreck havoc with the upcoming holiday shopping season leaving a already fragile economy badly hit.
Congressional Budget Office in early November 2012 had said that if the tax increases take, the US economy will go back into recession next year and jobless rate will jump 9.1% by the end of 2013.
The fiscal cliff in US is a combination of $500bn in tax increases and spending cuts that begin in January 2013 if the Obama Administration and Congress cannot agree to extend some tax cuts for middle income Americans.