The industry's illness is directly related to taxes. While losses accumulated by the billions during the past 5 years, Government-imposed taxes and fees increased significantly more, and significantly faster, than any other single airline cost.

The fuel tax will cost the airlines more than $527 million annually, on top of the $6.5 billion the airline industry pays annually in federally mandated taxes and fees.

They include the 10-percent excise tax on airline tickets, a 6.25percent excise tax on cargo shipments, a $6 international departure tax, a $6.50 customs user fee, a $6 immigration user fee, a $1.45 agricultural inspection fee and, at many airports, a $3 passenger facility charge.

These taxes and fees are in addition to the Federal and State income, local property and other taxes, which all businesses must pay.

If levied in the form of a transportation tax, as Senator Santorum said, this would amount to a 52.5-cent-per-gallon tax, before the 4.3 cents is added.

Mr. Chairman, we urgently ask the Congress to not thwart the financial recovery just beginning, and to stop the commercial aviation jet fuel tax from being imposed. Preventing this tax is a necessary and critical step in creating an economic environment for a sustained airline recovery.

I would be more than happy to respond to any of your questions, Mr. Chairman.

Thank you.

[The prepared statement of Ms. Hallett appears in the appendix.] The CHAIRMAN. How do we intellectually justify to the other industries that they will be taxes, but not you?

Ms. HALLETT. Well, first of all, Mr. Chairman, I think I have just stated that we are already taxed to the tune of $6.5 billion last year. It is estimated that will be up to $6.9 billion this year. So we certainly are not shirking our responsibility, in terms of paying taxes. We are paying 52.5 cents equivalence in taxes right now.

The CHAIRMAN. This is if you, in essence, galvanize all of your excise taxes, right?

Ms. HALLETT. That is correct.

The CHAIRMAN. You are not counting your income taxes, but you have not been in a profit situation for so long that you may not have paid any.

Ms. HALLETT. Well, that is true. But we pay all other corporate, State and local taxes as well.

The CHAIRMAN. No. I understand that.

Mr. Collins, how much did the trucking industry pay in excise taxes last year?

Mr. COLLINS. We paid about 37 percent of the overall taxes that were paid into the Highway Trust Fund went into the General Fund. So that would be about $8 billion or $9 billion.

The CHAIRMAN. Now let me ask Ms. Hallett. You say you have paid $6.9 billion. The trucking industry says that they have paid $8.7 billion. I am not sure what the relevance of those two compari

sons are.

Ms. HALLETT. Well, Mr. Chairman, first of all, we are not in competition with the truckers or the railroads. There is a totally dif

ferent way in which we transport people. And, obviously, the truckers are not transporting people.

But I think that one of the more important aspects is that right now we, according to all the analysts, actually pay 115 percent more in taxes than do the truckers. And we pay 661 percent more in taxes than do the railroads. So it is very difficult to put us into a category of paying even more than that.

The CHAIRMAN. Let me ask you this. The arguments normally made on excise taxes-not so much on income taxes-is that they are passed along to the consumer. This is the debate we are in all the time, whether it is liquor taxes, cigarette taxes, fuel taxes, tire taxes, that they get passed along to the consumer. Do you agree with that?

Ms. HALLETT. Mr. Chairman, if I agreed with that, we would not have lost $13 billion in the last 5 years. Unfortunately-and, again, this is based on analysts-for every 1-percent increase in the price of a ticket, there is an automatic 1-percent decrease in the number of people buying tickets.

So we are placed in a very precarious position; one in which we have not been able to pass these costs on. That is why we have lost so much money.

The CHAIRMAN. Next we will go to Mr. Harper, who is representing the Association of American Railroads. I see you have Karen Phillips with you, who used to be with this Committee. Karen, good to see you.

Mr. Harper?

STATEMENT OF EDWIN L. HARPER, PRESIDENT AND CHIEF EXECUTIVE OFFICER, ASSOCIATION OF AMERICAN RAILROADS, WASHINGTON, DC

Mr. HARPER. Good morning, Mr. Chairman.

I will submit my written statement for the record, if I may.

I am Edwin L. Harper, president and chief executive officer of the Association of American Railroads. I appreciate the opportunity to call your attention to a threatened tax inequity against the nation's freight railroads.

Unless Congress acts before October 1, 1995, the railroads will be singled out as the only transportation mode paying the 1.25cents-per-gallon deficit reduction fuel tax. It is simply discriminatory to require railroads to pay 1.25 cents more towards deficit reduction than their major competitors.

To avoid putting the railroads at a competitive disadvantage, the Association of American Railroads respectfully urges that all modes of transportation contribute equally to deficit reduction. This can be done fairly, and with no negative impact on revenue.

Prior to 1990, the sole purpose of the transportation fuels tax was to finance the highway trust fund. Therefore, railroads, like other non-highway users, did not pay this tax.

The 1990 Reconciliation Act extended the fuel tax beyond its historic role as a highway user fee by introducing a 22-cent-per-gallon deficit reduction tax on transportation fuel.

The original 2.5-cent tax was payable by the railroad and trucking industries into the general fund of the Treasury. The 1993 Rec

onciliation Act imposed an additional 4.3-cents-per-gallon deficit reduction rate on all surface transportation modes.

At present, and until October 1, 1995, railroads and truckers pay a combined deficit reduction tax of 6.8 cents. That is 4.3 plus 2.5 cents per gallon on transportation fuel.

Under the 1993 Reconciliation Act, on October 1, 1995, the entire 1990 2.5-cent tax paid by highway users will be redirected into the highway trust fund, instead of being dedicated to deficit reduction. At that time, the railroad rate will be reduced to 1.25 cents. But railroads will be left as the only payers of the 1990 deficit reduction tax.

Thus, highway users and inland water carriers will pay only 4.3 cents per gallon out of the Treasury's general fund, while the railroads will pay 5.55 cents per gallon for deficit reduction.

Unless the deficit reduction rate levied on the railroads is reduced to the level of its competitors, the rail industry will be subject to tax discrimination. For example, as of October 1, the railroads will pay 5.55 cents per gallon, highway users 4.3, and inland waterway carriers 4.3.

Tax equity must begin with the recognition of the fundamental distinction between the railroads and their competitors, with respect to infrastructure funding. The highway trust fund, paid for by all highway user taxes, provides for the financing, construction and maintenance of the public roads used by trucks.

The railroad industry operates over privately-funded, privatelyowned and privately-maintained rights-of-way, on which the industry spends $7 billion a year, and pays almost $400 million a year to property taxes. And, of course, it must pay interest on the debt used to fund that $7 billion a year.

If you want to galvanize that, to character the term used earlier, for our right-of-way, we pay $2.25 a gallon, if we were taxing ourselves. And that is equivalent to the truckers paying 24 cents a gallon for their right-of-way, and the commercial air industry paying 52 cents a gallon for their rights-of-way provided in the air. The CHAIRMAN. This is if you take what you pay?

Mr. HARPER. What we pay ourselves, out of our own money. The CHAIRMAN. What would otherwise, in a normal industry, go to a trust fund and be paid?

Mr. HARPER. Correct.

Moreover, because we do not enjoy, do not require, and do not want a trust fund, the diversion of, or creation of an excise tax paid by the railroads into a trust fund of any kind, we feel is totally inappropriate.

The diversion of a deficit reduction tax, paid by trucks into the highway trust fund, certainly benefits their rights-of-way. And that should be balanced by the repeal of the fuel tax paid by the railroads.

If, on the other hand, a fuel tax is deemed appropriate for deficit reduction, all transporters should be required to make equal contributions. This can be done without creating a revenue shortfall. If the commercial airlines continue to be excluded from paying fuel taxes, a .031-cent-per-gallon tax on fuel used by the same mode, subject to the 1993 deficit reduction tax, including railroads,

would raise the same revenues as the 1.25-cent discriminatory tax on railroads.

The CHAIRMAN. All right. Run that by me again.

Mr. HARPER. All right.

The CHAIRMAN. If we were to take the 1.25 cents that is remaining, and spread it across what, everybody?

Mr. HARPER. Everybody. And that assumes that the airlines are not going to pay.

The CHAIRMAN. Are not going to pay?

Mr. HARPER. If that is the decision.

The CHAIRMAN. All right.

But your

.031 assumes that they do not pay?

Mr. HARPER. That they do not pay, right.

It is .031.

The CHAIRMAN. Point zero three one. You are right.

Mr. HARPER. So it is a whisper, rather than a real hit here. This proposal would allow fuel taxes paid by the other modes to continue to be directed to their respective trust funds, with participating modes contributing equally to deficit reduction.

If equity were to be achieved without the commercial airlines paying into deficit reduction, each of the surface modes would then pay 4.331 cents per gallon. That is the 4.3 cents, plus .031 cents. In conclusion, competing modes of surface transportation should be required to make equal contributions to deficit reduction.

The Association of American Railroads urges the elimination of the discriminatory 1.25-cent-per-gallon deficit reduction tax on railroads, as a matter of fairness.

Thank you.

[The prepared statement of Mr. Harper appears in the appendix.] The CHAIRMAN. Let me ask you, you have concentrated on the 2.5, cut the 1.25 at the end of September. If the 4.3-cent tax that we enacted in 1993 is permanent

Mr. HARPER. Correct.

The CHAIRMAN [continuing]. And it is all for deficit reduction, and the airlines pay none of it, are you suggesting, since that is permanent, and no one is talking about repealing it, that it should be extended to the airlines?

You talked about equity of taxes.

Mr. HARPER. Yes. We are interested in equity of taxes. And we feel that the competing modes of transportation should pay the same rate of taxes, the same kinds of taxes, for deficit reduction and general purposes.

The CHAIRMAN. Do you regard yourself as competing with the airlines?

Mr. HARPER. Only in a minor way. The major competition in hauling freight is that we haul more ton-miles of freight inter-city than any other mode. The truckers would be number two in tonmiles. But, unfortunately, they far and away have the largest market share in terms of revenues generated by hauling freight.

The CHAIRMAN. What is my answer to the question, therefore, as to whether this 4.3-cent tax should be extended to the airlines?

Mr. HARPER. We do not take a position on how the Government taxes other modes of transportation. Our prime interest is equity and fairness.

The CHAIRMAN. Well, I am intrigued. You have an argument of equity and fairness as to your 1.25. And, if we are going to keep it, you would like to spread it all over everybody but, apparently, still exempting the airlines.

Mr. HARPER. That is a decision for the Committee, whether or not they wish to exempt the airlines, since our primary interest is equity and fairness with respect to modal competition.

The CHAIRMAN. That is the trucks, basically?

Mr. HARPER. Basically trucks and, to some extent, water carriers. The CHAIRMAN. Next we will take Susan Perry, representing the American Bus Association.

STATEMENT OF SUSAN PERRY, SENIOR VICE PRESIDENT, GOVERNMENT RELATIONS, AMERICAN BUS ASSOCIATION, WASHINGTON, DC

Ms. PERRY. Thank you, Mr. Chairman.

I am Susan Perry, senior vice president for Government relations of the American Bus Association.

You have my statement for the record. As you requested, I will give you a short summary of it.

I must say that I could not help but notice that, so far in this hearing, nobody has mentioned the inter-city bus. For my purposes, that is probably pretty good. I think we are not even a blip on the radar screen, let alone one of those rounded numbers in anybody's budgeting.

ABA is indeed the trade association of this little inter-city bus industry. We represent some 700 bus and tour companies and several thousand travel/tourism related organizations.

My statement today deals with two diesel fuel Federal tax issues, brought about by the Omnibus Budget Reconciliation Act of 1993, that of the 4.3-cents-per-gallon deficit reduction tax, and the reddyed fuel and its attendant requirements and consequences for the inter-city bus industry.

We are asking that, for reasons of equity which, I must say, I have heard mentioned a number of times already, if you do exempt aviation from the 4.3 cents diesel fuel tax for the next 3 years, that you exempt the inter-city bus industry from it as well.

The CHAIRMAN. Should we exempt the railroads too?

Ms. PERRY. I believe that AMTRAK has a request, or has a provision in its pending reauthorization legislation, does it not?

The CHAIRMAN. I do not mean AMTRAK. I mean the railroads generally. Or are you talking only about passenger carriers?

Ms. PERRY. I am talking about passengers. Yes. I am talking pas

sengers.

The inter-city bus industry, which is the most fuel-efficient mode, and which carries this country's least advantaged travelers, many of whom have no other means of inter-city transportation, has been reduced substantially over the years from serving a high of almost 20,000 points down to 10,000. It is now down to around 5,000.

Subsidized competition by the Federal Government to other modes of transportation is largely responsible for this decline.

I have with me today a copy of an updated report, which just came off the press yesterday, prepared by Nathan Associates, Inc., a local economic research firm, entitled "The Impact of Higher