Industry Fundamentals

Fiscal cliff sidestepped: Now what for the hotel industry?

2 Jan, 2013 By: David Eisen
 


Like any procrastinating college student with a term paper to turn in, Congress, at the eleventh hour, passed a plan in order to avoid the dire fiscal cliff that had the U.S. on edge for months.

The bill essentially shields middle-class taxpayers from tax increases that were set to take effect this month. Anything less could very well have returned the nation back into the bosom of recession.

The hardest hit will be those households making $450,000 a year or more. Tax rates will rise on their wages and investment profits, marking the first time in more than two decades that a broad tax increase has been approved with Republican support.

New measures would raise the top tax rate to 39.6 percent from 35 percent last year, starting with income over $400,000 for individuals and $450,000 for married couples.

That said, Americans making less than $400,000 per year still aren't immune as payroll taxes will rise with the expiration of a temporary 2-percent tax cut adopted two years ago. According to preliminary research from the Tax Policy Center in Washington, D.C., more than 80 percent of households with incomes between $50,000 and $200,000 would pay higher taxes. Among the households facing higher taxes, the average increase would be $1,635, the policy center said.

What Does It Mean For The Hotel Industry?
Certainly, the very fact that action was taken to prevent any cataclysmic event is reassuring to the American people and the broader U.S. and global economy. Best of all, for hoteliers, they now know what rules they are dealing with and can implement their 2013 strategies with more aplomb.

PKF Hospitality outlined three separate scenarios to explain the results from the fiscal cliff negotiations. In their scenarios, the U.S. neither kicked the cliff (i.e. keep tax codes the same for 2013 and deal with it all at a later date), nor went over the fiscal cliff, which very likely would have pushed the U.S. back into recession in early 2013, PKF said. Instead, Congress fixed some of the problems, a scenario wherein PKF now expects revenue per available room to increase somewhere in the neighborhood of 6 percent in 2013. "We are seeking certainty as recovery nears," said Mark Woodworth, president of PKF Hospitality Research.

According to PKF, had "we gone over the cliff," RevPAR would have been flat for 2013—not the growth the hotel industry would want or expect.

Mark Laport, president and CEO of Concord Hospitality Enterprises, said any inaction by Congress could have resulted in banks tightening their belts, leading to a stagnant lending market and, therefore, a slow down in hotel transactions.

Still, "it’s going to be slow and easy—a continued recovery. I don't see a boom; too many challenges," Laport said. "We feel it will be a good year, but we cant underwrite politics. If they don’t screw it up, I see the next three years being good."

 

Topic : Fiscal Cliff
External Source : The Washington Post, Bloomberg

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