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size from individual owner-operators to carriers with thousands of trucks. Diverse as those businesses are, they all use fuel. Thus, ATA has a strong interest in fuel taxation.


Trucking is a $345 billion industry, representing nearly 5% of gross domestic product. Shippers increasingly choose to send goods by truck; trucking now accounts for 79% of the nation's freight bill.

As businesses at all stages of production trim inventories, they increasingly rely on frequent and precisely timed truck deliveries to make sure they have enough raw materials, parts and final goods to keep operating. This growing dependence on trucking instead of storing materials has held down costs and made suppliers more nimble in meeting changing demands from both domestic and foreign consumers.

At the same time, this dependence makes the financial and competitive condition of the trucking industry all the more important to the entire economy. With a profit margin that barely reached 2.5% even in the boom year of 1994, the trucking industry cannot afford to absorb fuel tax increases, especially ones that are imposed unequally.


Fuel costs account for anywhere from 4% to 20% of a trucking company's operating revenue, depending on the nature of the company's vehicles, customers and length of haul. Some carriers use fuel almost exclusively for traveling over the road, while others have substantial off-road fuel use.

Commercial trucks consume about 36 billion gallons of fuel per year-23 billion of diesel fuel and 13 billion of gasoline. At current federal tax rates of 24.4 cents per gallon for diesel fuel and 18.4 cents for gasoline, that means commercial truck owners contribute $8.1 billion yearly in fuel taxes to the federal treasury. In addition, commercial truck owners pay another $2.4 billion annually in other highway user taxes. Of this amount, $1.4 billion comes from a 12% excise tax on new trucks, tractors and trailers; $0.7 billion from the heavy vehicle use tax; and $0.3 billion from the excise tax on truck tires. All told, commercial trucks pay 38% of total federal highway-user taxes paid by all motor vehicles, although commercial trucks represent only 16% of total vehicle miles. Commercial trucks also pay $7.4 billion per year in state fuel taxes.

The federal tax rate on diesel fuel soared from 4 cents per gallon on March 31, 1983, to 24.4 cents per gallon on October 1, 1993, an increase of 510% in 10-1/2 years. In the same time span, the gasoline tax climbed from 4 cents to 18.4 cents, a jump of 360%. (The consumer price index rose by about 45% in that period.) State fuel tax rates have risen almost as rapidly on average over that period.

If all of that extra revenue had gone into highways, truck owners might have recouped the added burden in increased productivity. But increasing amounts have been diverted to nonhighway purposes. The highway account used to receive the entire 4 cents of fuel tax. Now it receives 10 cents of gasoline tax and 16 cents of diesel tax. Of the remainder, 6.8 cents goes to general fund, 1.5 cents to the mass transit account, and 0.1 cents to the Leaking Underground Storage Tank Trust Fund. In other words, only 54% of gasoline tax money and 66% of diesel fuel tax money now goes into the highway account.

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Even those figures overstate how much is actually spent on highways. “Highway" account money is spent for such nonhighway purposes as restoring historic railroad stations and bike paths, and for mixed-mode purposes such as railroad grade crossings.


Currently, highway users are subject to general-fund fuel taxes totaling 6.8 cents per gallon. That represents 37% of the total federal tax on gasoline and 28% of the total on diesel fuel. These are extremely heavy burdens for an industry with as narrow a profit margin as trucking.

Congress did vote in 1993 to move 2.5 cents of that general-fund fuel tax into the Highway Trust Fund, effective October 1, 1995. Now it is time to take the next step: either repeal the remaining 4.3 cents of general-fund fuel tax paid by highway users or place that money into the highway account, and spend it on highways.

The highway system makes an important contribution to U.S. growth, productivity and competitiveness. The system deserves adequate funding, as the Senate recognized last month when it passed S. 440 and overwhelmingly authorized the National Highway System (NHS). The NHS vote signifies that, in a time of shrinking or slowly growing federal support for most activities, federal highway money should be targeted where it can provide the greatest benefit to the American economy and people. Siphoning off fuel taxes from high-priority highway projects, either through explicit general funding, or through nonhighway activities underwritten by the highway account, breaks faith with highway users and robs all Americans of productivity-enhancing infrastructure.

The growing interdependence of the U.S. economy on international markets also argues for devoting highway-user taxes to highways, especially the NHS. The adoption and possible expansion of the North American Free Trade Agreement, as well as our growing trade with Europe, Asia and other areas, will be meaningless if we can't get goods to and from those markets at a competitive transportation cost. Much of that international freight travels to or from the border on highways. But the growth of that traffic will be choked off unless we keep the highway system in good repair and can remove bottlenecks.

How much money should go into the highway account? The Federal Highway Administration in 1993 estimated that it will take $290 billion to meet the national backlog of needs for highways and bridges. The amounts to be paid in to the highway account by highway users under current law will not be adequate to fund all of this work. But Congress must balance those financing needs against the need to reduce overall federal spending. The decision on how much Congress is willing to spend on highways should dictate whether the 4.3-cent general-fund fuel tax is repealed or redirected into the highway account.


ATA rejects the suggestion that the 1.25-cent tax that railroads will pay into the general fund starting October 1 should be spread among all modes, even at the rate of a fraction of a cent. The 1.25-cent fuel tax to be paid by railroads in fiscal 1996 will raise about $36 million. In contrast, in fiscal 1995 the federal government is spending over $1.1 billion on passenger and freight rail activities, including money taken from the Highway Trust Fund. Many of these activities provide direct benefit to freight railroads, including $20 million for research and development, $17 million in local rail freight assistance, and a large percentage of the money spend on railroad safety, grade crossings, Northeast Corridor improvement and other mixed Amtrak/freight rail projects, and the Federal Railroad Administration itself. (In_contrast, the Federal Highway Administration's administrative costs are covered entirely by highway user fees.) The $36 million that the railroad industry will pay through a 1.25-cent fuel tax is but a drop in the barrel offsetting these outlays. However, we certainly support fairness across modes, and so ATA would not oppose placing this revenue in a rail trust fund.



In 1993, Congress moved the point of collection of the diesel fuel tax to the terminal rack, required terminals to dye fuel on which tax had not been paid, and empowered the IRS to impose stiff penalties for dyed fuel used for taxable purposes. ATA had long called for better diesel fuel tax enforcement to assure that all highway users were paying the correct amount of tax and that those taxes actually got into the Treasury. The new rules appear to have paid off. Diesel fuel tax receipts rose dramatically in 1994, with perhaps as much as $1 billion of the additional receipts being attributable to improved compliance. Trucks in particular have demonstrated an extremely high compliance rate: of the 19,000 truck fuel tanks checked by the IRS in roadside inspections in a multi-state "blitz" last winter, 99% had no evidence of dye.

ATA is pleased to report that IRS enforcement personnel have generally shown a lot of good faith in trying to work with fuel users to minimize problems in inspecting fuel tanks and processing refunds. Surprisingly few problems have been reported.

There are several unresolved issues with respect to the fuel tax regulations, however. The IRS published temporary and proposed regulations dealing with numerous aspects of the new system November 30, 1993 and held a public hearing March 22, 1994. Final regulations were to be out by June 30, 1994. Today, more than 18 months after the new law took effect, those regulations are nowhere in sight. We urge this Committee to insist that the Treasury Department without further delay publish final rules on any issues that have been resolved, and propose regulations on ones that are still unresolved.

There are three issues in particular that the final regulations should clear up, and that Congress should resolve if the regulations fail to do so. First is accidental mixing of dyed and undyed fuel. With over 100,000 tank truck deliveries of fuels occurring daily, there are inevitably cases in which dyed fuel is delivered into an underground tank containing undyed fuel, and vice-versa. Typically, the tank truck company buys the fuel and removes it for reprocessing. But no procedure has been specified to allow the carrier to claim a refund on the tax-paid portion of the mixture. Second, the temporary regulations impose an unreasonable, discriminatory and unnecessary documentation burden on refund claimants such as owners of refrigerated trucks and trailers (reefers). Fuel used in reefer motors is not taxable since the motor is separate from that used to propel the truck on the highway. Most reefer fuel is bought at truckstops where the only fuel sold is tax-paid, undyed fuel. To claim a refund, the reefer operator must submit a copy of the fuel receipt that includes the seller's statement that there is no visible evidence of dye. But the typical reefer is filled 1-2 times per week, or up to 100 times per year. Some fleets have over 1000 reefers. Therefore, to get a refund, the operator must collect tens of thousands of receipts from drivers all over the country, copy the receipts and send them to an IRS service center. As one service center told a carrier, "We don't have room to store the receipts, let alone examine them, so we just throw them out." This rule is not only a colossal waste for taxpayer and IRS alike; it is unnecessary. The IRS should require taxpayers to keep documentation in their possession for inspection if needed, just as it does with all other refund claimants.

In addition, there is an issue that the IRS has been unwilling to address through modifying its regulations and therefore may require Congressional intervention. The IRS allows refunds for highway users with a second motor such as the motor that

powers refrigeration units in trailers. This fuel use is not taxed because it does not contribute to highway wear and tear. However, the IRS does not allow refunds for nonhighway use when that use is powered by the main motor, such as "power takeoff" usage. This is an important equity issue for operations that take power off the main motor, for instance to pump liquid or dry bulk cargo from a tank, lift or compact trash, or mix and pour concrete. These vehicles and others use fuel to varying degrees for nonhighway purposes, just as reefers do, but under IRS rules cannot claim an exemption.


The trucking industry has always been willing to pay its fair share of legitimate highway user fees. However, it is inequitable and discriminatory to charge trucks disproportionate amounts for nonhighway purposes that do not directly benefit highway users. Therefore, ATA supports repeal or dedication to the highway account of the 4.3-cent general-fund fuel tax paid by highway users in addition to the already enacted transfer to the Highway Trust Fund of the initial 2.5-cent general-fund fuel tax.

ATA believes there are good grounds for retaining a small fuel tax on railroad diesel fuel, possibly in a rail trust fund. Such a tax is justified in terms of federal outlays on rail activities that are paid out general funds (in contrast to user-financed federal highway activities).

ATA applauds the improved diesel tax compliance that has been achieved with the 1993 changes in law and its fair administration by the IRS. But final rules must be improved, by Congress if the Treasury is unwilling to do the job promptly itself.


Mr. Chairman and members of the Committee, I am Carol Hallett, President and Chief Executive Officer of the Air Transport Association of America. ATA represents the major carriers of the U.S. airline industry; our members transport more than 95 percent of all passenger and cargo traffic moved on U.S. flag carriers. On behalf of our member airlines,* I appreciate the opportunity to appear before you today to discuss the imposition of a new tax scheduled to come into effect October 1, 1995. This new tax, the commercial aviation fuel tax could have a devastating impact on the financial well-being of our industry, just as a faint glimmer of financial recovery is cropping up on our balance sheets. The commercial aviation fuel tax would be a financially crippling blow on this industry.

Let me review our industry's recent financial condition. The airline industry has not made a profit in this decade. Collectively, the industry has lost more than $13 billion since 1990. The last year of black ink was 1989, when the industry reported a $128 million net profit, slightly better than breakeven. In the intervening period, our industry lost $3.9 billion in 1990, $1.9 billion in 1991, $4.0 billion in 1992, $2.1 billion in 1993, and $285 million in 1994.

Since 1990, nearly 120,000 airline employees and 125,000 U.S. aircraft manufacturing employees have lost their jobs. Further, nearly half of our major passenger airlines have been forced to file Chapter 11 Bankruptcy, and three major U.S. airlines have ceased to exist altogether. Many airline employees whose jobs have not been eliminated have made substantial wage and benefit concessions, and total airline industry concessions now exceed one billion dollars annually. At one company, employees gave wage and benefit concessions totalling in excess of $4.9 billion over nearly six years, in exchange for majority ownership of the company. At other carriers, employee concessions have averaged between 10 and 14%.

At a minimum, a new Federal tax in excess of one-half billion dollars annually would invalidate these employee concessions and seriously undermine the progress made by airlines over the past few years to lower costs and increase productivity and efficiency. More likely, the distinct possibility exists that some of the financially weaker carriers simply would not survive.

As Gerald Greenwald, Chairman and CEO of United Airlines succinctly stated recently: "Dead companies don't pay taxes."

*ATA member carriers include: Alaska Airlines, Aloha Airlines, American Airlines, American Trans Air, America West Airlines, Continental Airlines, Delta Air Lines, DHL Airways, Evergreen International Airlines, Federal Express, Hawaiian Airlines, KIWI Airlines, Midwest Express, Northwest Airlines, Reeve Aleutian Airways, Southwest Airlines, Trans World Airlines, United Airlines, United Parcel Service, and USAir. ÁTA associate members include: Air Canada, Canadian Airlines International, and KLM-Royal Dutch Airlines.

Unfortunately, the Administration has continued unabated its push to impose this new tax. Notwithstanding the fact that the measure of industry performance is net profitability, the Administration has repeatedly mis-characterized industry performance by citing our operating profits rather than net profits and has drawn the conclusion that based on this inappropriate measure the industry can afford to pay the jet fuel tax.

Now for a description of that faint glimmer of financial recovery I mentioned earlier. During the course of the next few weeks, the airlines will be releasing their 2nd quarter financial reports. Wall Street analysts anticipate that the airline industry will have a collective profit this quarter, perhaps as much as a $700 million. However, let me caution your reading of this result it is only a drop in the bucket. While welcome news after five consecutive years of losses, this quarterly profit and even an anticipated full year profit does not make up for the string of losses, $13 billion over the last five years, or the need for capital expenditures of more than $75 billion in the remaining years of the decade. This $700 million second quarter profit is only a down payment. We need a string of profits to make a dent in the industry's balance sheets. And any momentum towards sustained profitability will be lost if the 4.3 cents per gallon aviation fuel tax is allowed to go into effect.

There are several notable reasons why you should discount this 2nd quarter profitability as being any measure of the industry's wherewithal to pay the 4.3 cent per gallon jet fuel tax.

First, the airline industry is invariably profitable in the second quarter. Even in years in which the industry lost billions, it turned a profit in the second quarter. Second, the airline industry's debt as a percent of total capital has increased from 54 percent in 1989 to 65 percent in 1994-compared to the U.S. industry average of 40 percent.

Third, only one airline in the entire industry can sell paper at anything above junk grade.

While it is nice to have good financial news in an industry accustomed to bad news, let's not proclaim the industry's financial illness over prematurely and assume that it can pay an increase in taxes. It can't. Moreover, the industry's illness is directly related to taxes.

Distressingly, while the industry's losses accumulated by the billions of dollars over the past five years, government-imposed taxes and fees increased significantly more, and significantly faster, than any other single airline cost.

The 4.3 cents per gallon fuel tax is expected to cost the airlines more than $527 million annually. This new tax is in addition to the $6.9 billion the airline industry will pay in 1995 in Federally-mandated taxes and fees. In addition to the 10% excise tax on airline tickets and a 6.25% excise tax on cargo shipments, airlines collect a $6.00 International Departure Tax, a $6.50 Customs User Fee, a $6.00 Immigration User Fee, a $1.45 Agricultural Inspection Fee and, at many airports, a $3.00 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.

Allow me to take a moment to illustrate the staggering increase in governmentimposed taxes and fees during the past five years. In 1990, the Passenger Ticket Tax was increased from 8% to 10% as part of an overall deficit reduction package. The additional 2% was deposited directly into the general fund, not the Aviation Trust Fund, in both 1991 and 1992. The timing of this ticket tax increase, coming in the midst of a deep recession and increased fuel costs resulting from the Gulf War, came at the absolute worst time and added more than $1 billion a year to airline costs. (I would note that within twelve months of the imposition of this tax, nearly all of the bankruptcy petitions were filed and Pan Am, Eastern, and Midway Airlines ceased operations.) As a result, however, the airline industry has already made a special contribution of approximately $2 billion for Federal Budget deficit reduction.

As large as the 1990 ticket tax increase was, it is just one example of the many cost increases mandated by the Federal government during this difficult period. Listed below are examples of additional tax and fee burdens placed on the airlines during the past five years:

• 1990: As part of that same deficit reduction package, the cargo and waybill tax was increased from 5% to 6.25%. This tax cost our industry $326 million last


• 1990: Congress authorized the Passenger Facility Charge, which cost the airlines $851 million in 1994 alone, and more than $1.4 billion over the past three years.

• 1990: Congress authorized the Agricultural Inspection Fee, to which the airlines paid $63 million last year.

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