If the U.S.
economy falls over the “fiscal cliff,” it would have an immediate
and severe impact on U.S. business travel, according to new research
from the Global Business Travel Association Foundation (GBTA).
The new report
analyzes the business travel impact of expiring tax cuts and
automatic spending reductions – commonly referred to as the “fiscal
cliff” – as well as the longer-term ramifications of leaving
current levels of deficit spending unaddressed.
The report
models the potential business travel impact of two scenarios – one
in which the fiscal cliff takes effect, and one where no changes are
made to current tax and spending provisions.
Fiscal
Cliff Scenario: If the fiscal cliff occurs, the U.S. economy
would enter a recession. This would lead to a total loss of $20
billion in spending on U.S. business travel over the next nine
quarters – a 2.5% decline – and a reduction of 32 million
business trips.
However, the
elimination of tax cuts and reductions in federal spending would lead
to reduced deficits and lower interest rates over the long run,
resulting in business travel spending and an overall economy that
grows more quickly after absorbing the shock of the fiscal cliff.
No Fiscal
Restraint Scenario: If all provisions of the fiscal cliff are
eliminated or delayed indefinitely, business travel would experience
more robust trip volume and spending as a result of stimulus from
lower tax rates and continued government spending. In the near term,
this scenario would lead to a cumulative loss of only 300,000
business trips and a gain of $5.5 billion in total business travel
spending over the next nine quarters.
However, by
2014, much of the spending growth would be attributed to higher
inflation. Larger budget deficits and growing debt will begin to take
a toll, and business travel spending growth would continue to slow
beyond the forecast horizon.
“Given
business travel’s indispensable role in spurring economic growth,
these findings dramatically illustrate the potential impact of the
fiscal cliff on the overall economy,” said Joseph Bates, vice
president of research at the GBTA Foundation. “Falling over the
cliff would set back the clock substantially for business travel and
every other sector of the economy in the near term.
“This
research shows that we must seriously consider both the near-term
ramifications of the fiscal cliff and the long-term implications of
expanding government debt,” said Michael W. McCormick, GBTA
executive director and COO. “Either way, the fiscal cliff is a
wake-up call for leaders looking to craft smart economic policy going
forward.”
The research,
GBTA BTI™ Outlook – United States Special Report: Fiscal Cliff
Scenario, was conducted through an analysis and econometric model
used in the quarterly GBTA BTI™ Outlook – United States report
and altered to reflect predictions in business travel spending and
volume according to each of these potential outcomes.
