www.airlines.org

FAAC Competition S

Committee

Analysis of Industry Tax Po

August 4, 2010
OVERVIEW OVERVIEW

• Industry is doing its job – providing more flights, to more places, f

shippers), at lower prices:

• With overall U.S. inflation (CPI) easily outpacing airfares, US 

their mission to make air travel safer and more affordable to a

• With respect to tax recommendations, previous commissions hav• The US Aviation Tax model is broken

• Burden is out of synch with industry financial wherewithal• More emphasis by Congress/USG on raising collections than • Federal tax policy inconsistent across modes of transportatio• States increasingly seeking to tax aviation to solve local fisca

• Industry and customers not getting commensurate benefits from t• Proposals for new and higher taxes continue to surface• Taxes will hinder U.S. aviation economic contribution and global c
The Evolution of Air Travel: From Luxury 

Domestic Scheduled Service: All U.S. Passeng

1990 $220* to fly1,000 miles

1990 424 millionpassengers

PREMIUM OFFERING Limited/exclusive Unique/highly differentiated set of offerings Aspirationally driven purchase decision

COMMO Unive Less  Funct

* A

TA analysis of Bureau of Transportation Statistics data, in constant 2009 dollars, net of all government-imposed charges
Previous Presidential Commissions Have 

“Tax policies often have had a major and advthe industry. Although the Commission conclchanges alone will not restore the industry to believe there are several tax provisions that ability of the industry to return to financial heaWe believe those provisions violate reasonabcommon sense and good public policy and wopinion changes must be made to relieve the industry’s unfair tax burden.”

The National Commission to Ensure a Strong C

“Change, Challenge and Competition: A Report to the President and 
“Special” Aviation Tax Burden* Exceede

In Addition to Typical Federal, State and Local Corporate Taxes (e.g

* Federally levied/approved commercial aviation taxes/fees only; some taxes/fees shown include co

Sources: Department of Homeland Security, FAA, Office of Management Budget, Transportation Security Administ

DHS = $3.5B

FAA 

2009 collections ($millions) from airlines

Federal Aviation Administration (FAA)Department of Homeland Security (DHS)U.S. Airports
Growing Tax Bite on $300 Domestic Air 

Revenue From U.S. Airlines to Compe

1972 Taxes

7% ($22)*

1992 Taxes

13% ($38)*

Airfare

Taxes

* Sample itinerary assumes one-stop domestic round trip 

with maximum passenger facility charge (PFC) per airpor

Source: ATA analysis of federal tax code
Industry Taxation Out of Synch With Finan

2001-2009 Annual Average, in Billio

Sources: ATA and various federal agencies
In Transportation, Only Aviation Funds Ho

$ 

AirBusRailVessel

* Appro

ximate a

verage for r

ecent years based on all taxes collecte

d b

y

D

HS and its respective agenci
In Transportation, Only Airline Custome

$ 

Air BusRailVessel

* Appro

ximate a

verage for r

ecent years based on all taxes collecte

d
We’re Not Getting a “Return” On Our Ta

2009 On-Time Airport Departure Rate 

* EWR, JFK, LGA and PHL.Source: ATA and F

A

A
U.S. Airports Have Identified Unr

Per-Passenger Capital “Need

Airline Industry Tax Burden

2001-2009 Average

ACI-NA Cap

2009-2013 

$21 per enplanement $26 per en

* $18.9 billion per

y

ear as applied t

o FAA-projected enplanements of 730.

4 million per y

ear (av

g 200
Proposals to Increase Airline Tax Burd

Selected Examples Below

$ 

Passenger Facility Charge9/11 Security Fee Increase U.S. Climate Change TaxesEU Emissions Trading Scheme* UK Passenger Duty Tax* Developing Nations Tax* 

* Glo

b

al ta

x estimate
Inappropriate Taxes Can “Seriousl

the Market for Air Transportation 

“The nature of air transportation...superficially makes it a conindirect taxation. As a high-revenue (though not high-profit) ssuppliers, aviation tax collection is inexpensive and convenieThere is also an ingrained common perception, largely misplcentury...that taxation of air transportation constitutes a tax o“Inappropriate taxes, either in terms of their magnitude or thedistort the market for air transportation services. Because the products is often derived from the final demands of society foas well as from the desire for individuals to travel for leisure pfriends and relatives, distortions to ticket prices have the poteaffecting national output and the larger welfare of the countrypenalize those industries most reliant on high-speed, scheduindustries generally having the greatest potential to improve economic wellbeing.”

Prof. Kenneth J. Button, “The Taxation of Air Tra

http://ww

w.gmupolicy.net/transp
Proposed Sub-Committee Recomm

No new taxes and fees on an industry that is at a sensitrecovery

•

Oppose proposed hikes of existing U.S. taxes (PFC, 9/11 fee

•

Oppose imposition of new federal and state taxes (e.g. cap-a

property, ancillary, travel and tourism, etc.)

Don’t discriminate against airlines as compared to othe

•

Fund homeland security from general taxpayer base, not fro

customers

•

Other competing modes do not pay federal and local infrastr

Aviation taxes must fund programs that benefit aviation form of improved safety/reliability, infrastructure, and e

•

Taxes should not fund non-aviation progr

ams (e.g., social ca

etc.) or non-commercial aviation programs

Revisit earlier tax recommendations from previous airlicommissions
Properly Funding Homeland Security Is 

“It is almost bizarre to tax air travelers for our respon

we believe that it is the nation that is at war with terrobvious —

the fight shouldn’t be waged on user fees 

air travelers. Security is everyone’s business, not justheir passengers’ concern. Terrorism that turned pasinto missiles should have underscored the common Sadly, the security t

ax compounds the damage terro

the nation’s economy generally and, in particular, on industry. It makes no sense to cripple the airlines wiespecially for security...”

Editorial Board — Seatt

“User fees burden troubled airline
Possible Additional Areas of Further I

• Investigate / analyz

e equity of tax burden among av

• Investigate / analyz

e implications / benefits of non-U

•

Review existing studies / recommendations (includi

work as well as reports by previous federal aviation 
Balisles Commission Tax Recommend

1. Amend the Alternative Minimum Tax so that airlines and other capital inten

pay taxes at a time when they report losses.

2. Roll back the ticket tax and cargo waybill tax to their pre-1990 levels of 8% 

10% and 6.25%).

3. Reduce the FAA budget allocation from the trust fund from 75% to 70% to 

airline users, and the public benefits of aviation.

4. Exempt airline fuel from any proposed transportation fuel tax (the tax that t

with was never enacted, however this recommendation applies just as wel

“energy/environmental taxes”).

5. Expenditure of funds on improving facilitation of passengers and cargo arr

rough approximation to the amounts collected in Customs, INS and AgricuCommission stated that the fees collected by those agencies were not beinpassenger and cargo screening processes).

6. Ensure that airport revenues are not diverted to non-airport purposes.

7. Approve only PFC applications that meet the PFC statutes criteria.8. When jet fuel prices rise substantially due to war or other national emergen

strategic reserve to address the adverse impact of those price spikes on th
Mineta Commission Tax Recommenda

1. In general, funds raised for aviation purposes should be available for avia

vein, services provided to the users should be supported by them financiaare of a general public benefit should be supported by the general tax pay

• Tax revenues raised should be directly linked to supporting FAA prog

discretionary budget caps

2. The Commission recommends that the FAA be primarily funded through 

commercial passenger and cargo air carriers and a fuel tax for general avCommission recommends a continuation of the fuel tax for general aviatiorecommendation, it is clear from existing aviation cost allocation studies t

payments does not cover the costs general aviation imposes on the FAA

fuel taxes imposed on general aviation should be re-evaluated based on 

costs of providing ATC and related services to them.

3. The Commission recommends that the Congress look to AIP and Passen

sources of additional revenues to finance future airport capital needs.

4. FAA management must be performance-based