Even if you think one political party’s intransigence on raising taxes as part of a compromise to avoid the so-called “fiscal cliff” is dangerous, self-defeating or just plain stupid, the latest warning out of the White House still sounds like a stretch.
The president’s National Economic Council and his Council of Economic Advisers said Monday that Republican lawmakers could be the Grinch Who Stole Christmas if middle-class folks think their taxes might go up next year.
The idea is that the specter of higher taxes could hurt consumer confidence and spending during the critical holiday shopping season, White House economists say.
“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 economists say in a report.
It’s almost certainly true that higher taxes from the expiration of the Bush-era tax cuts would cripple consumer spending in 2013. The new White House study says the tax hike on middle-income taxpayers would cut consumer spending by almost $200 billion next year — a figure backed up by the independent and reasonably credible Congressional Budget Office, as well as private forecasters.
But as for middle-class Americans cutting back on holiday spending now because they might face higher taxes next year? No offense, but that seems to be a bit far-sighted for most folks.
More important, there’s no evidence for it — at least so far in the holiday shopping season.
For one thing, Americans say they will actually spend more this year than they did last holiday season. U.S. consumers predict they’ll spend an average of $770 on holiday gifts this year, according to the latest Gallup poll. That’s up a smidgen from the $764 they estimated they would shell out at this time last year.
Extrapolating from that response, Gallup projects holiday retail sales to increase 3.5% to 3.7% versus last year, which essentially matches the average annual increase over the past decade of 3.5%.
The National Retail Federation is projecting an even bigger sales increase of 4.1% this holiday season, which is the most optimistic forecast NRF has released since the recession.
“In spite of the uncertainties that exist in our economy and among consumers, we believe we’ll see solid holiday sales growth this year,” National Retail Federation CEO Matthew Shay said in a statement.
The season certainly appears to have gotten off to a good start. A record 247 million shoppers visited stores and websites over Black Friday weekend, up from 226 million last year, the NRF said Monday.
And if you’re really worried about consumer confidence, take comfort in this: In some great timing, gas prices have slumped significantly ahead of the holiday shopping season.
Although fuel prices are up 1.8% year-over-year, they have fallen 7% during the past four weeks, notes Citigroup (NYSE:C) analyst Deb Weinswig. “We believe the sequential decline gave consumers more confidence to splurge on discretionary items on Black Friday,” she writes in a note to clients.
True, Black Friday isn’t a great predictor of the season’s final tally, but if the figures fall short of expectations, it seems unlikely to be because consumers are worried about what their tax bills will be in 2013.