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Monday, December 17, 2012

The Fiscal Cliff - If the fall doesn't kill you.....


Travel is a trillion dollar global industry.  Here in the U.S. there are 2 billion trips taken annually, 1 billion of which involve at least one overnight stay.

25% of those trips are for business purposes.

GBTA just published a new paper about the impact of the Fiscal Cliff on the Business Travel Industry that is available to GBTA members only.  There is a free preview also available (click HERE to go to their download page).

If you want the punchline of the fiscal cliff for the Business Travel sector (read airlines, hotels, car rental, restaurants, GDS companies, travel agencies,  OTAs, etc. etc.), here it is:


“the U.S. would enter a recession, leading to a loss of $20 billion in spending in U.S. business travel over the next nine quarters – a 2.5 percent decline – and 32 million fewer business trips”.


This comes directly from a letter from GBTA Executive Director and COO Mike McCormick that was entitled:

THE FISCAL CLIFF: IF THE FALL DOESN’T KILL YOU, CORPORATE TAX REFORM MIGHT


In case you weren't on their mailing list, here is a REPRINT of the letter:


December 13, 2012

Dear Business Travel Industry Colleagues,

With the hard-fought 2012 elections behind us, the Administration and Congress now face difficult
decisions impacting the nation’s economy and the business travel industry.   The enthusiastic postelection commitment to “work across the aisles to reach common ground” seems long ago.

With the release of widely divergent Administration and Republican deficit reduction proposals,
finding significant common ground is difficult.  In addition, the media reports a growing “wedge”
between small and large businesses about corporate tax reform priorities and the most damaging
aspects of these proposals.   As the debate continues, our industry must not let any wedge detract
from the ultimate goal.

Corporate tax reform should continue to encourage business travel.

Tough challenges directly impacting our industry include
the much publicized “Fiscal Cliff”, a series of automatic
across-the-board cuts of $1.3 trillion from defense and
domestic programs, expiration of the Bush and Obama tax
cuts, and expiration of the payroll tax holiday and various
tax policies.  Although likely to be delayed or reworked over the course of 2013, the full mandatory spending cuts and tax increases would hit the U.S. economy very hard,
including our business travel industry.  Recent GBTA
Foundation research concluded that if the economy falls off
the Fiscal Cliff, the U.S. would enter a recession, leading to a loss of $20 billion in spending in U.S. business travel over
the next nine quarters – a 2.5 percent decline – and 32
million fewer business trips.

Also, critical funding decisions on 2013 government agency funding levels are in limbo.  The
agencies will operate at 2012 funding levels through the end of March 2013 because Congress
failed to pass any agency appropriations bills.  Flat funding impacts expansion of programs the
industry supports. Although the approaches and politics differ, Republicans and Democrats alike
are committed to reducing the annual $1.1 trillion budget deficit and $16 trillion national debt.

Corporate tax reform will be front and center in 2013.  Although most favor a reduction in the
corporate income tax rate, reaching consensus on the best way to achieve the reduction will be
difficult. Small and large businesses, partnerships, and smaller pass-through businesses that report
income on the individual side will be impacted differently depending on the treatment of
deductions, income, corporate structure, locations, operations, and other factors.  Without question,
the diverse businesses within our industry could end up paying more or less based on the reforms.

Of particular interest to our industry is the risk that Congress would alter the long-standing
deductibility of travel and entertainment expenses in exchange for lowering rates. One key debate
about tax reform and simplifying the tax code is whether the U.S. can raise revenue by reducing or
eliminating critical business deductions for expenses that are ordinary and necessary in carrying on
a business, including travel expenses. Today business travel expenses are generally 100 percent
deductible for both corporations and pass-through businesses.  Since travel expense is a relatively
large portion of operating costs for many businesses, the deduction of these expenses impacts a
company’s tax position and makes this area a potential target for Congress.  Travel buyers and
suppliers alike will be significantly impacted.

We have met with staff of both the House Ways and Means Committee and Senate Finance
Committee to discuss the many ways a healthy business travel industry drives economic growth
and jobs, and to ask them to consider the impact of tax reforms on the diverse business travel
industry.  We have also continued to meet with Congressional leadership and industry stakeholders
to foster support.  The current travel expense tax deductions allow businesses to grow, prosper,
and create jobs through cost-effective business travel.  Limiting or eliminating this critical
deduction will slow economic growth.  

This is an ideal time to reflect on the impact of
government policies on the business travel industry
and our individual companies.  This impact shapes our
legislative priorities that facilitate, rather than stifle,
business travel growth.   This is not the time to short
change successful programs that make business travel
more efficient and productive, or to increase the tax
burden on the business travel industry.

Working together, we should urge the Administration and new Congress to facilitate business travel
and reject roadblocks to growth.  The reason is simple: business travel drives continued economic
recovery.  The multiplier effect of business travel is huge and easy to understand.   When companies
send employees on the road, they spend billions of dollars on hotels, restaurants, rental cars,
airfare, ground transportation, managed travel programs and tools, and related services.  They
make business deals that increase company profitability, expand facilities, and create the need for
more products and services.  Profitable companies increase jobs within their companies and with
suppliers and business partners.  The multiplier effect continues through the U.S. and global
economies.

GBTA will continue to advocate for the following business travel industry priorities that will move
our industry forward.

NextGen:  A modern, efficient air traffic control system is essential.  Long delays in the air and on
the ground, cancelled flights, and weather-related log jams in the congested northeast corridor cost
business travelers’ valuable time and money.  With today’s 700 million annual passengers expected
to grow to over a billion in 2024, NextGen programs should be fully funded with appropriate
oversight and performance metrics.

Risk-Based, Intelligence-Driven Screening:  Full funding for TSA PreCheck and CBP Global Entry
expansion is essential.  These proven, successful passenger prescreening programs streamline
airport screening and allow the government to focus its resources on higher-risk passengers to best
manage costs.  In addition, the U.S. should continue to work with other nations on reciprocal
trusted traveler programs.  Travelers save time and the system is secure.

Fair Taxation:  The Administration’s proposed increase in the Aviation Security Fee paid by
passengers (flat $5.00 fee on one-way trips increasing to $7.50 in 2018) should be rejected.  It will
increase travel costs and discourage business travel at the very time the economy needs it the most.
The solution is risk-based, intelligence-driven screening programs like TSA PreCheck and expedited
screening of other trusted travelers that reduce TSA costs.  Also, the European Union Emissions
Trading Scheme and similar unilateral tax schemes are not the way to address aviation emissions.
Increased air fares to and from Europe penalize business travelers.  A meaningful global approach
through the International Civil Aviation Organization will yield the best results.

Visa Reform:  Continuation of current highly successful programs to reduce visa processing times
and expand the Visa Waiver Program is critical.   All permit more business travel to and from the
U.S., growing the economy and jobs. Full funding to ensure adequate facilities, staffing and
equipment abroad and in the U.S. will ensure continued success.  

In closing, I urge you to ask your elected officials to support the policies that matter most to you and
your company.  Collectively, and with continued support from the Administration and Congress, the
business travel industry will continue to drive the nation’s economic recovery.

Thank you for your continued support,

Michael W. McCormick
Executive Director and COO
Global Business Travel Association
Alexandria, VA
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