Spousal travel deduction would benefit Hawaii

The House has passed a measure that would bring back a tax deduction for spouses on business trips

Federal lawmakers are considering re-establishing a tax deduction for spouses who accompany their partners on business, a move that would significantly enhance Hawaii's $1.8 billion business travel industry.

In 1993, Congress eliminated a spousal tax deduction that allowed business travelers to deduct the full cost of meals, airplane tickets and lodging for family members who accompanied them on business. Congressman Neil Abercrombie has been working since then on behalf of Hawaii's tourism industry and taxpayers to restore the deduction, which was recently passed by the House as part of a legislative trifecta.

The measure, which still has to go through the Senate to pass, not only returns a spousal travel deduction to taxpayers but it also reduces the inheritance tax/death tax and raises the federal minimum wage. The bill should come to a final vote in September.

Abercrombie secured the deduction's inclusion in the bill after negotiations with the House Ways and Means committee chairman, Rep. Bill Thomas, R-Calif.

"Hawaii's travel industry has been cyclical. We need to have incentives in place for the slow periods," Abercrombie said.

A deduction would be a terrific incentive for convention-goers and other business travelers to bring their spouses to Hawaii, he said. Business traffic fell after the tax deductions were eliminated, Abercrombie said.

"It will increase hotel occupancy, generate more business for restaurants, tour companies, and create a ripple effect on every business that depends on visitors," he said. "As a marketing tool, it can make a huge impact on the number of business and professional conventions we host."

The spousal travel deduction in HR 5970 would expire Jan. 1, 2008, but the congressman vowed to push for an extension.

"I've been trying to get the deduction passed for more than 10 years," Abercrombie said. "Getting it approved by the House is a milestone achievement, and if we can keep it in the bill, I'm optimistic we can extend it."

The travel industry has long campaigned for restoring the spousal tax deduction as a necessary incentive to help spur business travel, said Jonathan Tisch, chairman of the Travel Business Roundtable, in an earlier press release.

Restoring spouse travel deductions has the potential to essentially the double the strength of the U.S. business travel market, he said.

"It means that two people would be traveling instead of one, two people eating in restaurants, two people shopping, and two people visiting cultural attractions," Tisch said

While the immediate economic impact of restoring a travel tax deduction for spouses on Hawaii is not yet known, it surely will boost Hawaii's high-spending business travel industry, said Rex Johnson, president of the Hawaii Tourism Authority.

"This will enhance the temptation for our higher-spending business visitors to come to Hawaii," Johnson said. "They're an important category -- business visitors make up about 15.4 percent of our total arrivals -- and our business plans call for us to concentrate on it."

Hawaii small-business owners also could benefit from the inheritance/death tax provisions in the bill, which phases in new rates through 2015, Abercrombie said.

The bill would raise the current $2 million inheritance tax exemption to $5 million of an estate's value. Estate assets valued between $5 million and $25 million would be taxed at a 15 percent capital gains rate and those valued over $25 million would be taxed at a 30 percent rate.

"This is a big victory for family-owned businesses and their employees," Abercrombie said. "In Hawaii, with our high real estate values, even relatively small businesses can be subject to ruinous inheritance taxes."

Hawaii's asset-rich, cash-poor families often have to divert large amounts of capital for life insurance premiums and other non-operational expenses to be ready for the day of reckoning with the IRS, he said.

"That money could be used for reinvestment, business expansion and the creation of more jobs," Abercrombie said. "Reducing the inheritance tax means more family firms can remain in the hands of the families who built and operated them for generations."