Air Line Pilot, September/October 2002

President's Forum: Death and Taxes

Benjamin Franklin once wrote that "in this world, nothing can be said to be certain except death and taxes." Perhaps another certainty is that unless the U.S. government, airline managements, and the traveling public gain a clearer understanding of the real problems facing the airline industry, taxes will be the death of our airlines.

During a recent presentation before the Commission on the Future of U.S. Aerospace Industries, I responded to a congressional representative’s suggestion that large U.S. airlines’ financial crises were mainly due to high labor costs. I asked, if that really were true, how are European and Asian airlines, which have equal or greater labor costs and less productivity, making profits?

What is the difference?

Is the difference aircraft purchasing? No, those costs are similar, although some countries allow a greater depreciation rate; and tax laws for capital expenses are better in most other industrial countries than in the United States—they encourage airlines to buy, rather than discourage them from buying, new airplanes.

What about fuel costs? No, again—the market for fuel is global—we all face the same basic costs, although some airlines are better at hedging fuel costs than others.

The difference between U.S. airlines and airlines of the rest of the industrial world comes down to one large item—taxes. Our government keeps piling onto airline ticket prices more and more taxes and passenger-user fees. U.S. airlines are able to keep far less of a percentage of their revenue generated from passenger ticket price and cargo fees than carriers from many other countries.

According to the Air Transport Association, in 1972, about 7 percent of the price of an airline ticket for a single-connection round trip in the United States went to federal taxes. By 1992, the taxed amount of a ticket had jumped to 15 percent.

Now, airline passengers who buy a single-connection roundtrip ticket for $200 can expect 25.6 percent of their ticket charge to go to the federal government in taxes and fees, while a similar trip for $300 results in 19.4 percent going to the government. A comparable trip for $100 gets taxed a whopping 44.2 percent.

The ATA says that airlines face a myriad of charges on passengers, fuel, cargo, and now security. The federal government, for example, levies a passenger ticket tax of 7.5 percent of the base ticket price, a $3 tax for each domestic flight segment, a passenger security surcharge of $2.50 to a maximum of $10, a passenger facility charge of $4.50 to a maximum of $18, an international departure tax of $13.20, an international arrival tax of $13.20, an Immigration and Naturalization Service user fee of $7, a Customs user fee of $5, a cargo waybill tax of 6.25 percent, a frequent flyer tax of 7.5 percent, a jet fuel tax of 4.3 cents per gallon, a LUST fuel fee of 1 cent per gallon, and now has proposed an air carrier security fee of $20 per passenger.

Some U.S. government officials keep talking about "bailing out" the airline industry when, in fact, they gouge out nearly $11 billion a year in taxes and fees from airlines. I must ask, just who is bailing out whom?

When the federal government wants the public to stop doing or using something, a hefty tax—a so-called "sin tax"—is slapped on to discourage demand. Cigarettes, for example, have an 18.2 percent federal tax, while the federal gasoline tax is 11.5 percent. Hard liquor is taxed at 10.7 percent, and heavy firearms and ammunition have an 11 percent federal tax. A pistol or revolver has a 10 percent federal tax. Beer is taxed at 5 percent, a luxury vehicle at 3 percent. The Feds get 3 percent for your phone service. A ship cruise ticket is taxed 0.3 percent. No federal taxes at all are imposed on bus tickets or on rail tickets. Why does the federal government want people to stop flying when it stands to lose so much tax revenue?

We must change the prevalent attitude that the airline industry is some tax cash cow that the federal government can use to fund government agencies and to artificially balance the budget without providing the necessary reinvestment the airline industry requires for survival. And survival is what is at stake here.

No matter how low we take airline labor costs, the U.S. airline industry will not survive until the federal government loosens its tax stranglehold. If the government’s goal is to recycle airlines every five or six years through mergers or bankruptcies, then we are on course.

I urge all airline pilots and other parties whose interests lie in a strong U.S. airline industry to work for a political agenda that will reduce the airline industry’s tax burden and that will reestablish aviation as an integral part of the U.S. infrastructure.

s/Duane E. Woerth