America’s hotels have been through a lot over the last few years. Their operating income almost completely disappeared in 2020, along with nearly a third of their employees. They still haven’t fully recovered from the pandemic.
Although the outlook for 2024 is better than what the industry faced four years ago, hoteliers are dealing with a host of new challenges, including a nationwide labor shortage, persistent inflation, and a federal regulatory agenda that is making it harder to do business.
Our industry, which supports about one in every 25 U.S. jobs, needs help overcoming these obstacles. That’s why we need Congress to pass the Tax Relief for American Families and Workers Act, which passed the House in January in a bipartisan 357-70 vote. The bill does much more than just give a tax break to America’s deserving working families. It also includes items that are critical for the future of hotels, many of which were forced by the pandemic to put on hold much-needed renovations and property improvements.
COVID is behind us, but hotels are still years behind as one of its consequences. Even worse, they are struggling under a federal tax policy that discourages the investments needed to catch up.
The bipartisan tax bill includes an extension of a policy known as bonus depreciation, which enables hotels and other companies to immediately and fully deduct the cost of business improvements from their taxable income. If enacted, this would provide a powerful incentive to renovate hotel properties in ways that enhance our guests’ experience, including heating and air conditioning upgrades, new furniture, and a range of in-demand tech improvements.
Absent congressional action, the portion of these costs that can be deducted continues to drop dramatically. This year, hotels can only immediately deduct 60 percent of these improvement costs. That makes renovations and upgrades much more burdensome at a time when they are needed the most.
In 2023, when the bonus depreciation policy started phasing out, capital expenditures at hotels fell by 20 percent compared to the prior three years, according to the data experts at Smith Travel Research.
The Tax Relief for American Family and Workers Act addresses this problem by extending 100 percent bonus depreciation through 2025, giving hoteliers the flexibility they need to pay for needed property improvements and upgrades.
Hotels are also facing much higher tax bills due to the 2022 expiration of more favorable business interest deductions. Before then, increased business interest deductibility helped hoteliers keep their doors open in the wake of COVID-driven travel reductions. But starting in 2022, this deduction was cut back significantly, a change that ripped through the business community and effectively created a tax hike that punishes hotels for making financial decisions that helped them survive.
The House-passed tax bill fixes this problem by extending the broader interest deduction through the end of 2025.
These changes would do more than help hotels inch closer to recovery. It would signal that Congress is serious about protecting American companies and families from the higher taxes they are facing now and additional increases set to take effect in 2025, when several provisions from the 2017 Tax Cuts and Jobs Act expire. Failure to address this tax cliff would be the same as approving a steep tax hike — one that would severely hinder economic growth.
Tax policy is about aligning incentives with our nation’s economic goals. The nationwide labor shortage, persistent inflation, and an aggressive and costly federal regulatory agenda are combining to impede economic growth.
The House-passed bill sent a welcome signal that both parties support common-sense relief in the face of continued economic challenges. Hoteliers have already spent years adjusting to a shifting tax code that is becoming an impediment to prosperity. The Senate can make up for that lost time by quickly sending tax relief to President Biden’s desk.
Chip Rogers is president and CEO of the American Hotel and Lodging Association.