I certainly appreciate that the excise taxes are not a popular tax. As I was looking over the testimony that you will hear from members of the industry, there are a number of requests for relief. I want to remind the Committee that, in 1993, this Committee decided that deficit reduction was a very important and critical issue to the nation's well-being. And, with the stress on the need for deficit reduction, the Committee decided that an excise tax on a broad range of transportation fuels was appropriate, in order to be part of the deficit reduction plan. Today, we are addressing whether the intention of Congress should be effectuated with respect to the commercial airline industry, the railroad industry and the pleasure boating industry, or whether it should not. In 1993, Congress carefully considered and agreed to an allocation of the responsibilities of the various transportation industries for deficit reduction. The administration continues to believe that deficit reduction is an important part of our economic plan to insure the nation's economic health in the future. We believe that any piecemeal unraveling of the arrangements that were made in 1993 would be a mistake. With respect to commercial aviation, the administration opposes any further delay on the effective date of the 4.3-cents-per-gallon tax on commercial aviation fuel that was enacted as part of the Omnibus Budget Reconciliation Act of 1993. When Congress increased the excise tax on fuels used in transportation, the intention was that all modes of transportation be subject to the tax. However, the effective date of the tax on the commercial aviation fuel was delayed 2 years because of concerns that the industry generally was experiencing unusual losses. Today's economic picture is different. As the economy has recovered from the recession, air traffic has increased, the airline has experienced significant financial improvement. With me today is Patrick Murphy, who is the Acting Assistant Secretary for Aviation with the Department of Transportation. He has monitored the economic health of the airline industry for years, and has prepared an extensive analysis of the current state of the airline industry. He can respond to questions you may have in this regard. Given the improved financial condition of the airline industry, we believe that it can accommodate an excise tax of 4.3 cents per gallon on commercial aviation fuel. This tax rate is well within the range over which jet fuel prices have fluctuated in recent years, even if the tax were not passed on to customers. Moreover, we believe that an extension of the exemption for airline fuel is unwarranted, and would be unfair to other sectors of the transportation industry. The administration also does not support repealing or reducing the 14-cents-per-gallon excise tax on rail diesel fuel, which also is deposited in the general fund of the Treasury for deficit reduction. As the Department of Transportation analysis shows, relative to aviation and trucking, the railroad industry bears the lowest total burden of Federal taxes and fees, as a percentage of net revenue. Moreover, Congress balanced the treatment of rail and highway motor fuels by cutting the 22-cents-per-gallon tax in half for railroads, while shifting the entire 22 cents per gallon on highway motor fuels to the highway trust fund. As I stated earlier, we do not believe that the 1993 agreement should be reopened at this time. It is appropriate for Congress to reexamine it when it expires in 1999. As far as diesel dyeing is concerned, OBRA 1993 changed the imposition of the tax from the wholesale level to the terminal, and instituted requirements to dye the fuel. These changes have been an outstanding success. Increased compliance appears to be generating $600 million to $700 million per year more in tax receipts. This is an amount that we believe was previously evaded. Because the number of taxpayers liable for the tax has decreased to what the IRS said recently is about 1,236 terminals, the IRS's ability to monitor compliance has vastly increased. Two specific issues have been raised this morning with respect to diesel dyeing. Congress decided in 1993 to tax fuel used in pleasure boating, in lieu of imposing the luxury tax. We are aware that some marinas have only one fuel tank, and cannot service both taxable clear fuel for recreational boating and nontaxable dyed fuel for commercial boating. Proposals have been made to suspend collection of the recreational boat diesel tax or to create another exception for the industry. We have been monitoring the marinas since the tax was in effect, and areas in particular where recreational boating is popular. It appears now that the situation with respect to the availability of clear diesel fuel is improving, and the improvement has been significant since the summer of 1994. Even in areas where few marinas maintain both clear and dyed fuel, the situation has improved from what it was a year ago. Accordingly, the administration is opposed to suspending collection of the recreational boat diesel tax. We are cognizant of safety concerns. We want to hear more about the problems that have been experienced, in terms of safety, and any area where the 1993 changes have caused a safety problem. The administration would also oppose any effort to move the collection of tax to the retail level. We believe that this would lead to widespread noncompliance, and it would set a dangerous precedent that would begin to unravel the arrangement that was made in 1993. You have also asked that we comment on the application of the diesel dyeing in Alaska where, as Senator Murkowski has pointed out, more than 90 percent of the diesel fuel is used for home heating, commercial fishing and other nontaxable uses. Also, diesel fuel in Alaska often has to be blended with kerosene during the cold winter weather conditions. Unlike the excise tax statute, the Clean Air Act permits the Environmental Protection Agency to temporarily exempt certain States from dyeing requirements. We understand that Alaska is the only State that has been granted an exception from this statute. Subject to procedures that would be worked out with Senator Murkowski's staff and the Treasury Department, the administration would support a corresponding exemption from the require ment for dyeing diesel fuel sold in Alaska. We believe the Clean Air Act and the excise tax dyeing regime should be as harmonious as is feasible, respecting the differences between the two statutes. This concludes my prepared remarks, and I will be happy to answer your questions. Thank you. [The prepared statement of Secretary Beerbower appears in the appendix.] The CHAIRMAN. Would the Administration support a phase-in of the 4.3 cents on the airlines, as opposed to immediately hitting them? Ms. BEERBOWER. Our position this morning is that we caution this Committee about unraveling any aspect of the arrangement that was put in place in 1993. If the Committee decides that it wishes to get into that, then the exceptions that are made are largely revenue issues. Any money raised by these excise taxes, and put in the general fund of the Treasury, reduces the nation's deficit. It is for that reason the Committee supported the 1993 agreement, and for that reason we urge you to continue with the allocation that was worked out in 1993 among the industries. The CHAIRMAN. How do we solve the problem of the refrigerator trucks, where the fuel that is used for refrigeration purposes is not taxed? And you have an operator with a number of trucks. All of their drivers have to collect receipts for the exempt fuel, give them to the operator, who turns them into the IRS, who waits for a refund. In many cases, they have thousands of these receipts coming in. There has got to be a simpler way to solve this problem. Ms. BEERBOWER. Well, the IRS is actually with me this morning. Marty Washburn from the IRS has been working on a regulation project on diesel dyeing, the refund collection procedure, and the very burdensome paperwork that people have been pointing out as necessary. We are actively working on these regulations, and hope that they will be issues soon. Then we can respond to some of these concerns. The CHAIRMAN. Senator Breaux? Senator BREAUX. Thank you, Mr. Chairman. You commented on the suggestion that some of us have made to move the collection point down to the retail level, and let the seller of the fuel determine whether he is selling it to an exempt buyer or a taxable purchaser of the fuel. It is my understanding that Treasury says that the change does not produce any revenues and does not give us any credit. That would have to assume that nobody would follow the law at all. And I do not think that is correct. What is the basis for the assumption that, if we let the operator sell the fuel, and collect it from those who owe it, it will produce no taxable income? MS. BEERBOWER. I doubt that it is as black and white as no taxable income. But, as Senator Packwood pointed out, the situation before this provision was enacted was, I think, widely acknowledged fraud. There was a very large amount of noncompliance. I think there was a report in the Department of Transportation's written statement before the House Committee on Oversight of up to 25 percent fraud that was occurring. One of the reasons we believe that fraud has been reduced, and that the collections have been so much greater than even anticipated, is that the number of people subject to this is down to 1,236 terminals. The IRS can get its arms around 1,236 terminals. It can require registration. It can police. And the limited number of people from which the tax can be collected is something that is very manageable. If it were at the retail level, we have concerns that some people might collect and some might not. Clearly that would drive out of business any kind of an honest compliance effort on the part of a retail fuel seller. So we would prefer that the method of collection not be shifted. Senator BREAUX. Treasury would prefer that. I am not saying that that might not be a better way to insure 100-percent compliance. The question is the problems that it causes with marine operators. In my State, many of them are relatively small operators that have one tank from which they sell fuel. To require the purchase of two tanks-one for dyed fuel and one for the other-to assure compliance is something that I think may be an onerous burden on a lot of small business marinas around the country. I think that, if we could let people know clearly who has to pay the tax and who does not, that would be something that would be workable. It seems to me that there are other examples in the Tax Code where some people, because of age or what have you, are exempt from certain things. Those things work out when people understand what the requirements are and what the law is, and who is subject to it and who is not. I will admit that what we are suggesting may not be perfect, but I think it goes a long way toward solving the problem that we have created for marina operators out there. We are not talking about a lot of money, in terms of balancing the budget. And I think we ought to move toward moving the collection point down to the retail level. But I appreciate Treasury's position. Thank you. The CHAIRMAN. Senator Pressler? Senator PRESSLER. How will we make up for this lost revenue if, let us say, the tax is not imposed? How would you propose that we make up for the lost revenue? Ms. BEERBOWER. We would suggest you impose an excise tax on fuels, just like it has been done. We are supportive of the excise tax on the broad range of transportation fuels. We think that shifting the collection point has been very effective, and there are now what might be triple the amounts of revenues expected in the coffers of the general fund for deficit reduction. Senator PRESSLER. How do we treat trains, trucks and other modes of transportation, on a comparative basis, and where does that money go? It does not all go into the general Treasury, does it? Ms. BEERBOWER. It does not. Attached to the written testimony is a schedule that Patrick Murphy has prepared. And I will let him answer the question. It outlines the various taxes that are imposed on modes of transportation, and illustrates where that revenue goes, and what portion of it goes into the general fund for deficit reduction. Senator PRESSLER. Now on commercial aviation we have the various types of taxes. On commercial trucking, let us say that I pull up with my truck and purchase a gallon of diesel fuel. It is not broken down that much, is it, that we can really see? There is also a tire tax, a retail sales tax, a highway use tax, customs fees, and so forth. Is there any comparison of who gets taxed the heaviest? And where does the money go? Does it go into a trust fund? Does it go into the general fund in each case? Let us say I am going to travel by rail, then by truck and then by air. Can you give me a little comparison of where my money goes? Mr. MURPHY. Yes, sir. Senator PRESSLER. What am I giving the Federal Government? Mr. MURPHY. We estimate, by mode of transportation, the highest tax mode for the Federal Government is commercial trucking, with about 11 percent of their revenues going to Federal taxes. Senator PRESSLER. And that goes into which funds? Mr. MURPHY. The majority of it goes into a trust fund, a Federal highway trust fund. Senator PRESSLER. All right. Good. And the tire tax, where does that go? Mr. MURPHY. That goes into the trust fund. The retail sales tax goes into the Federal highway trust fund. Senator PRESSLER. Then the highway use tax, where does that go? Mr. MURPHY. The highway use tax also goes into the trust fund, Senator. Of the $8.8 billion in taxes paid by trucking, $7 billion goes into the trust fund, and about $1.7 billion goes into the general Treas ury. Senator PRESSLER. Now on that chart, which part of it does not go into the trust fund? Mr. MURPHY. The $1.7 billion does not go into Senator PRESSLER. That is the deficit reduction? Senator PRESSLER. Does that spring from the previous reconciliation bill? Or does that spring from that Highway Act we had here several years ago? Mr. MURPHY. That springs from deficit reduction legislation on fuel taxes, as I understand it. Senator PRESSLER. And then LUST, what was that? Mr. MURPHY. That is for the underground storage tanks that leak. That is a special tax that is imposed on all modes of transportation, to help clean up the environment. Senator PRESSLER. All right. So we get $8 billion collected from that source? Mr. MURPHY. Yes, sir. Senator PRESSLER. All right. Now we get into railroads. The fuel there is only $2.8 million, is it? Mr. MURPHY. That is million, yes, sir. Senator PRESSLER. That is underground tanks again. Deficit reduction is $190 million. Why is railroad so low? |