The U.S. aviation industry mobilized again this week in an effort to kill, or at least maim, two separate tax increase proposals from the Obama Administration. Nicholas Calio, president and CEO of the Air Transport Association, called the proposals “an all-out assault on the U.S. airline industry and our passengers.” Together the proposals call for the imposition of $3.5B annually in new taxes on airlines and their passengers.
“What is troubling to me – and should be of great concern to all of us – is that the U.S. government continues to use the airline industry as a cash cow, rather than seeing airlines as a growth enabler and a strategic asset,” Calio said in a Tuesday speech to the International Aviation Club. He added that the Obama Administration is not the only culprit because “there are indications that some members of the Congressional Super Committee view these tax increases as ‘low-hanging fruit.'”
In its deficit-reduction plan, the administration has asked Congress to impose a mandatory $100 charge for every airplane departure; this would include both commercial and corporate jets. President Obama said when he proposed the fee that it would make the system more fair and generate an estimated $11B over 10 years.
Currently, commercial airlines bear a much larger burden than corporate jets. Corporate jets are subject to a fuel tax. Commercial carriers pay ticket taxes, segment fees, international taxes and fuel fees. Since the two forms of flying are using the same air space and air traffic control services, the fees should be more equitable, the Obama administration said.
Airports Council International-North America is concerned about the proposed aircraft departure tax and its impact on aviation activity at airports. ACI-NA President Greg Principato reiterated that “if airports are to continue to meet the numerous federally mandated safety, security and infrastructure projects, we need to get the government out of the business of strictly limiting the ability of local communities to raise the funds needed to address their airports’ needs. This is the best way to create local jobs and enhance aviation infrastructure,” he said. “The proposed fee seems more about reducing the deficit than growing the economy.”
In addition, the administration wants Congress to double the passenger security tax to $5 per one-way trip, and triple the tax to $7.50 by 2017.
About $15B of the additional revenue would go toward deficit reduction, but the Obama administration is also looking for airlines to pay for a larger share of the annual bill for aviation security. It wants airlines to foot the bill for 75% of the cost of aviation security, compared to less than 50% currently.
Calio points out that no other form of transportation bears the cost of federal security, including Amtrak, transit, cruises or maritime.
“In short, the administration is proposing a huge new tax on the least profitable and most highly taxed industry in the economy while all its competitors are left untouched,” he said in the speech. “Given a razor-thin profit margin of just over 1.5% last year, airlines will have no choice but to try to offset the higher taxes by raising air fares or reducing service. The reduction in service will hit the less profitable routes and small and rural communities the hardest.”
Noting the inequitable nature of corporate taxes in the United States, with many profitable industries operating in a favorable tax and regulatory environment, Calio called the business environment for airlines “impossible.”
“We are saddled with tax and regulatory mandates and restrictions that are unheard of for other industries,” Calio said. He called on the president and members of Congress to support the creation of a National Airline Policy, which would include a reduction in the industry’s tax burden, the expedited implementation of a satellite-based air traffic management system, expanded access to rapidly growing global markets and a change in policy to allow the U.S. airline industry to attract investment.
