• 1993: Congress authorized an increase in the INS User Fee, from $5.00 to $6.00. This tax cost the industry $288 million last year. • 1993: The Customs User Fee was increased from $5.00 to $6.50 to help pay for the North American Free Trade Agreement. This fee cost the airlines $295 mil lion last year. Ironically, with regard to NAFTA, airlines negotiate access to foreign countries through separate individual bilateral agreements. Aviation rights are not part of the NAFTA treaty, and NAFTA had absolutely no effect on U.S. carrier access to the Mexican market. Yet, airlines were asked to pay for the benefits others derive from NAFTA through this increased fee. Mr. Chairman and members of the Committee, the taxes and fees listed above are only those which increased during the previous five years, and are in addition to those I mentioned previously. To target any single industry with such a plethora of new taxes-as well as tax and fee increases-at a time when cumulative industry losses total more than $13 billion would be almost comical, were it not true. Several charts following my written testimony visually display the rapidly increasing excise taxes and user fees over recent years, as well as the strong relationship between airline losses and these rapidly increasing government-imposed taxes and fees during this same period. Since my colleagues from several other transportation modes are sitting at the table today, you might ask, how does the airline industry compare to other transportation industries, such as the trucking, railroad, and intercity bus industries, with regard to Federally-mandated fuel taxes? The commercial trucking industry pays a Federal tax of 18.4 cents per gallon for gasoline and 24.4 cents for diesel fuel, intercity buses pay 7.4 cents per gallon, while the railroad industry pays a total of 6.9 cents per gallon for diesel fuel. While we do not wish taxes to be levied on anyone, let me point out that if the $6.5 billion which the industry paid in 1994 in Federallymandated excise taxes were instead assessed in the form of a transportation fuel tax on the fuel we buy in the U.S., our industry was already effectively paying an astonishing 52.5 cents per gallon tax! The airline industry is already paying government-imposed taxes and fees well in excess of its fair share. As John Dasburg, President and Chief Executive Officer of Northwest Airlines Corp. stated recently in an article published in the Wall Street Journal: "It is not difficult to appreciate the impact of such significant [government imposed] cost increases on an industry that operates on thin margins of about 2% in its good years. These fees and taxes are not based on profits, but instead must be paid without regard to profit or loss. And because airlines price to demand rather than cost, these cost increases cannot be passed on to customers; the airlines must absorb them. The story of the airline industry in the '90s is a textbook example of the damage that ill-conceived tax policies can do to an industry." During our efforts to restrain government-imposed costs, we are repeatedly confronted with the assertion that carriers should simply pass on the additional costs of new and increased taxes by charging higher air fares. Stated simply, if this were possible, the industry would have done this long ago, rather than confront the numerous adverse_consequences associated with losing an industry-wide $13 billion over five years. From an economic perspective, the culprit is price elasticity. Price elasticity of demand for air transportation measures the percent of change in air passenger demand in response to a 1% change in airline ticket price. Industry analysts and academicians have concluded that each 1% increase in airline ticket price results in a 1% decrease in passenger traffic. During the past few years of widespread industry losses, airlines simply have not been able to raise air fares to cover costs. In fact, carriers have been forced to lower their fares to attract customers. It has been nearly two years now since the Administration and Congress established the National Commission to Ensure a Strong Competitive Airline Industry. In the spring of 1993, the industry had just finished reporting what many termed "staggering losses," which at that time totaled almost $10 billion. When the Commission issued its final report to Congress and the Administration in August 1993, one of its major conclusions was that the amount of taxes imposed on our industry has impeded our ability to return to financial health. The Commission stated: "We believe those (tax) provisions violate responsible principles of common sense and good public policy and we are of the opinion changes must be made to relieve the airline industry's unfair tax burden.' We are particularly pleased that so many of your colleagues in the Congress clearly understand the industry's precarious financial situation and the impact of a new half-billion dollar annual tax on an industry which has not made a profit since 1989. 93-827 - 95 - 3 We ask your support for S. 304 which, with it companion measure in the other body, has broad, bi-partisan support. Despite a strong second quarter, America's airlines and their employees are still in danger. When the burdens of taxes, debt financing, government regulations and fees, and the equipment needs of the carriers are considered, the challenge they face is daunting. Imposition of the 4.3 cent per gallon fuel tax could be the final straw for some carriers. Please don't let that happen to them and their employees. Stop the imposition of the jet fuel tax while you can. Mr. Chairman, I would be happy to answer any questions you or any member of the committee might have. |