by Matt Alderton | January 07, 2013
On New Year's Day, U.S. lawmakers narrowly avoided going over the so-called "fiscal cliff" when they passed at the last minute the American Taxpayer Relief Act of 2012.

The legislation avoids a nightmare scenario resulting from the simultaneous expiration of several laws on Jan. 1, 2013, the result of which would have been simultaneous tax increases and spending cuts with the power to create a second recession. However, it also has several implications — positive and negative — for the travel industry, according to the U.S. Travel Association, which has released a travel-industry analysis of the fiscal cliff deal focusing on budget cuts, tax increases and post-cliff negotiations.

1. Budget Cuts

"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," explains President and CEO Roger Dow in a letter presenting the U.S. Travel Association's analysis.

According to Dow, the sequester would have "damaging impacts" on government agencies that facilitate travel, including U.S. Customs and Border Protection (CBP) and the Transportation Security Administration (TSA), cuts to which could cause longer waits at U.S. airports, jeopardize air traffic modernization efforts and, as a result, hurt travel to and within the United States.

2. Tax Increases

"The bulk of the legislation addresses personal and corporate tax policy," according to Dow, who said tax changes — including an increase in tax rates and a limit on tax deductions for high-income earners, not to mention an increase on payroll taxes for employees at all income levels — could affect leisure, group and business travel. "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."

3. What's Next

With the fiscal cliff resolved, lawmakers will turn their attention in the coming three months to further debate over federal spending and revenue, including the debt limit, entitlement reform and tax reform.

"The continued brinksmanship, wall-to-wall media coverage and ongoing concerns over spending cuts and taxes will occupy all of the first quarter, which could erode consumer confidence and delay discretionary spending," Dow said. "U.S. Travel will actively engage Congress to ensure that the impact on travelers is considered in the debate."

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