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 GBTA Foundation.
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. The full report is available exclusively to GBTA members by clicking here and non-members may purchase the report through the GBTA Foundation by emailing email@example.com.