If lawmakers don’t reach a deal to keep middle-class families from seeing a tax hike after the fiscal cliff deadline, retailers can expect to see about $200 billion less in sales next year, according to the White House.
That figure is according to a report released Monday by the White House Council of Economic Advisors. And 2012 holiday spending may also be impacted, according to the forecast, a blow to businesses large and small as the season is just kicking off.
For Morgan Hermand Waiche, founder and CEO of New York City-based Adoreme.com, a lingerie retailer, any tax hike means lower sales.
“With more taxes, people have less to spend, and the first thing they cut out are extras,” he said. “Luxury goods and gifts get cut first, so spending would be hurt by this.”
Misty Young, owner of the Squeeze In, a chain of four restaurants in the Reno, Nev., area, said business has already suffered this year as uncertain consumers kept wallets snapped tight ahead of the presidential election. Not extending tax breaks for the middle class will lead to more frustration and penny-pinching, she said, and retailers will suffer.
“People will put up their hands and say, ‘Come on, give us a break,’” she said. “That is the mentality with consumers now. They want a break, and are doing the best they can under really difficult situations.”
However, for online retailer Jamie James, a tax-cut extension isn’t the solution. Andover, Mass.-based James sells the Cellfolio, a luxury cell phone case, and has seen a drop in holiday sales already year-over-year.
“It’s due to financial uncertainty,” she said. “Although economists stated Black Friday sales were higher this year over last year, I really haven’t seen that. I think it has to do with the fact that people are still very conservative.”
Cutting taxes would be helpful, giving middle-class shoppers more capital to work with, however James said it won’t be enough to ease financial fears.
“I think that a lot of people are uneducated as to what is happening in Washington,” she said. “They think the fiscal cliff will be an immediate disaster starting January 1. Hopefully a solution will ease people’s fears—we could all stand to have one less thing to worry about.”