U.S. Travel Association Warns Industry on New Tax Policy

washington dcContinued brinksmanship, wall-to-wall media coverage and ongoing concerns over spending cuts and taxes will occupy all of the first quarter of 2013 which could erode consumer confidence and delay discretionary spending, says an analysis of federal policy after the "Fiscal Cliff" crisis by the U.S. Travel Association.

U.S Travel noted that on New Year's Day, following weeks of contentious negotiations between the Obama Administration and Republican leaders, the Senate and House enacted H.R. 8, the American Taxpayer Relief Act of 2012.  After an overwhelming 89-8 vote in the Senate, the House passed the bill by a vote of 257-167, and President Obama signed into law.

The moves avoided or at least postponed the so-called "fiscal cliff", according to  Roger Dow, President and CEO, of U.S. Travel. But, Dow noted, the legislation and its tax changes could impact leisure, group and business travel, as well as personal and corporate tax policy. 

Key provisions cited by U.S. Travel include:

Tax rates will permanently rise to Clinton-era levels (39.6%) for families with income above $450,000 and individuals earning more than $400,000. All income below the threshold will permanently be taxed at Bush-era rates.

The tax on capital gains and dividends will be permanently set at 20 percent for those with income above the $450,000/$400,000 threshold. It will remain at 15 percent for everyone else.

The estate tax will be set at 40 percent for estates above the current exemption amount of $5 million, which is indexed for inflation.

The 2009 expansion of tax breaks for low-income Americans (the Earned Income Tax Credit, the Child Tax Credit and the American Opportunity Tax Credit) will be extended for five years.

The Alternative Minimum Tax (AMT) will be permanently patched to avoid the AMT hitting an estimated 30 million taxpayers.

Two limits on tax exemptions and deductions for higher-income Americans will be reimposed: The Personal Exemption Phaseout (PEP) and the itemized deduction limitation (Pease) kicks in at $300,000 for families and $250,000 for individuals.

The full package of temporary business tax breaks known as "extenders" – including the research and development and wind energy tax credits – will be extended through 2013.

The payroll tax holiday that has been in place for the past two years will expire, meaning the employee's share will return to 6.2 percent.

U.S. Travel also noted that the  payroll tax increase, higher income taxes on families earning more than $450,000 and above $400,000 for individuals, as well as lower deductions will "lighten pocketbooks in 2013 compared to 2012, impacting discretionary spending and possibly affecting travel decisions in the year ahead."

Dow urged the industry to "Fasten Your Seat Belt" noting that the next three months are likely to be a roller coaster of debates over federal spending, the debt limit, entitlement reform, and tax policy. "The federal debt limit has been officially breached, although Treasury has indicated it has flexibility to manage payments for two months or so.The delayed sequester is now scheduled to hit on March 27. The current continuing resolution funding general government operations expires on March 27," U.S. Travel said.

"The President has indicated an unwillingness to negotiate over the debt limit, but Republicans seem certain to demand changes to entitlement programs before passing another debt limit increase," Dow noted. "The President also has promised to seek additional revenues from both wealthy individuals and corporate tax reform as part of a “balanced” approach to spending reform."

"Perhaps of most significance to our industry is what the legislation does not do - it does not resolve the so-called "sequester" that was enacted in 2011 requiring cuts to government agency budgets of approximately 8 percent for fiscal year 2013. Instead, the bill delays the effects of the sequester for two months," Dow said.

U.S. Travel, Dow noted, has previously written to Congressional leaders about the damaging impacts the sequester would have on government agencies that facilitate travel, most importantly the Departments of Homeland Security, Transportation and State. 

"We are primarily concerned about the ability of U.S. Customs and Border Protection (CBP) and the Transportation Security Administration to manage increased travel loads on a reduced budget. Cuts to CBP, for example, could lead to regular, multi-hour long lines to clear customs at major gateway airports. In addition, the sequester would jeopardize longer-term projects like the Federal Aviation Administration's NextGen air traffic modernization program," Dow said.

Visit www.USTravel.org

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