The report from the National Economic Council and the Council of Economic Advisers states that the billions in reduction could affect all areas of consumer spending.
Consumer spending makes up approximately 70 percent of the American economy, the report noted.
President Barack Obama has asked lawmakers to act to renew the middle-class tax cuts and give families and businesses certainty as they approach the holiday season.
To act before year’s end would mean, the president said, no increase on 98 percent of families and 97 percent of small businesses. Every American will also get a tax break on the first $250,000 of their income.
“The President has called on Congress to act now on extending all income tax cuts for 98 percent of American families and not to hold the middle-class and our economy hostage over a disagreement on tax cuts for households with incomes over $250,000 per year,” the White House said. “The Senate has passed this bill and the President is ready to sign it.”
Should Congress fail to act, income taxes will go up in January, costing a typical middle-class family $2,200 in higher taxes. With less disposable income, retailers and businesses are expected to take a hit.
Some 15 million Americans work in the retail industry, which accounted for 9 percent of the total employment growth since the recession ended in June 2009, according to the report.
Obama is still in negotiations with Congress on how to best avert the "fiscal cliff" in January, when higher taxes would be accompanied by automatic budget cuts. They are still trying to find the best approach to decrease federal spending while bringing in new revenue.
The President has said taking a “balanced approach” involves asking the wealthy to pay more.