Washington—As Americans breathe a collective sigh of relief as the legislation passed Tuesday to avert the so-called “fiscal cliff” heads to President Obama’s desk for his signature, retailers especially should be relieved.
According to Jack Kleinhenz, chief economist at the National Retail Federation (NRF), the nation’s largest retail trade association, had the tax hikes and spending cuts that made up the fiscal cliff been allowed to go through, retails sales in 2013 would have been flat for the year—with negative growth in the first half of the year. Moreover, the White House report said in a November 2012 report that consumer spending could have taken a hit of nearly $200 billion in 2013 if middle-class tax cuts were allowed to expire.
While retail stocks already started rising again upon news of a Congressional deal, the final bill, which passed 257 to 167 in a bipartisan vote in the House of Representatives, is far from complete but it does provide businesses with greater tax certainty in the short term.
Fiscal Cliff Postponed Until February?
About $46 billion in business tax breaks were included in the compromise. The legislation contains a long list of tax “extenders,” or temporary tax provisions that will be perpetuated for a year. Also included was a provision allowing businesses to write off immediately half the value of new investments, known as “50% bonus depreciation.”
However, the legislation postpones for two months the deep federal spending cuts—the so-called “sequester”—that were a primary concern about hitting the fiscal cliff.
That delay could set up another fiscal cliff in late February, analysts said.
“The Administration and Congress did what was politically easy but will soon have to return to deal with issues that are economically critical if we are to sustain a growing and vibrant economy,” Shay said. “Congress and the White House still need to develop long-term plans dealing with tax reform and other fiscal issues. We have avoided the immediate crisis, but there’s much more to be done before our economy is fully restored.”
In its summary of the legislation, The White House said Tuesday, did that the legislation left “substantial scope’” for “reforming corporate taxes” and cutting the corporate tax rate to make it more competitive with the rate in other industrialized countries.