Fiscal cliff: White House steps up pressure on GOP to reach a deal

White House economists warn that unless Congress extends expiring middle-class tax cuts 'without delay,' consumer confidence will take a hit at a critical holiday season for retailers.

The White House is ramping up pressure on Republicans to make a deal that averts a trip over the “fiscal cliff.”

Monday morning, the White House put out a report warning that Americans might pull back on spending in the face of a tax increase, threatening the economy. A typical family of four will see a tax increase of $2,200 next year if the Bush-era tax cuts are allowed to expire on the middle class, the report says.

Later on Monday, a top White House economist made a surprise appearance at the daily briefing to reinforce the report.

“One of the many reasons why I think it's important that Congress extend the middle-class tax cuts without delay, without drama, is because it will help to maintain the increase in consumer confidence that we've seen since August of 2011,” said Alan Krueger, chairman of President Obama’s Council of Economic Advisers.

The “fiscal cliff” refers to the $607 billion in tax increases and deep spending cuts that will automatically go into effect at the end of the year if Congress does not act. The Obama administration is adamant that taxes rise on the top 2 percent of taxpayers, while holding taxes steady for the rest.

Mr. Krueger says the White House economic team calculated that if taxes rise on the middle class, consumption would decline next year by about $200 billion.

“To put that in some perspective, that would reduce the growth of consumption by 1.7 percentage points and shave 1.4 percentage points off of GDP growth next year,” Krueger said, noting that consumption accounts for about 70 percent of GDP.

“Our estimates are quite close to estimates of private sector forecasts and also quite close to the Congressional Budget Office's estimate that GDP growth would be reduced by 1.3 percentage points next year if the middle-class tax cuts are not extended,” Krueger said.

The White House also suggested that uncertainty over taxes could harm the holiday shopping season, a particularly critical time for retailers.

In separate action, White House officials met Monday with Thomas Donohue, president of the Chamber of Commerce, Business Roundtable president John Engler, and other business leaders. Two weeks ago, Mr. Donohue complained in a press conference that he had been left out of the fiscal-cliff discussions.

At the White House briefing, press secretary Jay Carney rejected the characterization of Senate minority leader Mitch McConnell (R) that the fiscal-cliff talks were “at an impasse.”

“We remain hopeful and optimistic that we can achieve a deal,” Mr. Carney said.

Over the weekend, Obama spoke with the leaders of both houses of Congress, Republican House Speaker John Boehner and Senate majority leader Harry Reid, about the negotiations. In addition, some Republicans – including Sens. Saxby Chambliss of Georgia and Lindsey Graham of South Carolina – indicated flexibility over allowing a tax increase for the wealthy, as long as the Democrats makes concessions on entitlements.