White House economic report forecasts Mass. job losses, shrinking economy without middle-class tax cut extension

WASHINGTON – If Congress fails to come to an agreement on the middle class tax cut extensions, it could trigger jobs losses and cause the Massachusetts economy to shrink, according to a new White House analysis.

A sharp rise in middle class taxes – something both parties are hoping to avert — would prompt residents to spend nearly $4.6 billion less next year in Massachusetts, resulting in a 1.2 percentage point drop in the state’s Gross Domestic Product.

A typical Massachusetts family of four, earning $86,000, would see its income taxes rise by $2,200, according to the report. The report estimates that consumers nationwide would spend nearly $200 billion less than they otherwise would in 2013, unless the tax cuts are extended for the vast majority of Americans.


The figures were put together by President Obama’s Council of Economic Advisers and come as Obama pushes to make the fiscal debate in Washington resonate around the country. On Wednesday, he announced several initiatives, seeking to capitalize on his campaign success by encouraging people to post messages on the Facebook pages of their congressmen or tweet their support for his approach.

“If there’s one thing that I’ve learned, when the American people speak loudly enough, lo and behold, Congress listens,’’ Obama said on Wednesday, with a group of middle class families around him.

“My hope is to get this done before Christmas,’’ Obama added. ‘‘But the place where we already have in theory at least complete agreement right now is on middle-class taxes.’’

Obama wants the current tax rates to stay on income less than $250,000. But he wants the rates to increase – returning to where they were about a decade ago – on any income that’s great than that. Republicans want to retain the rates for all and have criticized Obama, saying he has not submitted a realistic proposal.

If Congress doesn’t act, the rates will increase for everyone. Top congressional lawmakers and their aides are trying to negotiate a broad deal that would solve both the tax cut issue, as well as budget cuts that are set to be implemented if no action is taken.


Although both measures would reduce the nation’s deficit, such a confluence of events would threaten to tip an already-soft economy into a recession.

Representative Tom Cole of Oklahoma, in a move first reported by Politico, has told GOP colleagues that they should consider abandoning linking the lower tax rates for the wealthy with the middle-class rates. It would be better, he argued, to make sure that middle class tax cuts are preserved. Cole is considered close to House Speaker John Boehner.

Several influential voices, however, are growing pessimistic that Congress will be able to come to terms with the White House.

“I’m really worried,’’ Erskine Bowles, a former top official in President Clinton’s administration and a chair of a debt-reduction commission, said at a breakfast sponsored by the Christian Science Monitor. “I believe the probability is that we’re going over the cliff, and I think that would be horrible.’’

He said there was only a 33 percent chance that Congress would pass any legislation before Jan. 1, when the rates are set to rise.

The new White House report is focused on how middle class Massachusetts residents would be hurt if their tax cuts are not extended. But the state would see other effects.

State officials have said, for example, that Massachusetts would lose $300 million in tax revenue this year and $1 billion next year because less tax revenue is coming in. Additionally, the state would lose $200 million in direct federal funding, Jay Gonzalez, secretary of the Executive Office for Administration and Finance, told the Globe earlier this week.


Federal spending cuts would also impact Massachusetts industries that rely heavily on federal government spending. Defense funding for Massachusetts, for example, would drop by $1.2 billion and National Institutes of Health spending would drop nearly $200 million, Gonzalez said.

Loading Comments...