That amount of money, after all, could fund the essential air services programme, which assures commercial airline flight in small unprofitable markets seven times over, as well as public broadcasting.
But such thinking is missing three important points. First, Congress is controlled by Republicans. Second, for their first 100 days controlling the 104th Congress, those Republicans have pushed tax cuts (funded by budget cuts) as the central tenet of their platform. And third, airlines and their lobbying arms simply do not like the thought of having to pay any more taxes on a commodity whose price inflation in 1989-90 contributed significantly to industry losses in the subsequent five years totalling $13 billion.
The issue here is the 4.3-cents-per-gallon tax that was supposed to be the airline industry's contribution to the Clinton administration's 1993 deficit-cutting federal budget plan. The industry was given a two-year deferral back then because of its appalling losses, which that year had resulted in the formation of the national airline commission. Though the commission recommended that airlines be relieved of some of their tax burden, one of its members, Laura D'andrea Tyson, argued the 'best medicine' for airline industry recovery was a strong economy. This meant that fuel tax revenue should not be deferred but instead be used for deficit reduction.
Tyson, who then chaired the president's Council of Economic Advisers, now heads the more influential National Economic Council, and, sources speculate, is eager to see the tax stick this go around. It was left to Patrick Murphy, acting assistant secretary for international policy at the Department of Transportation, to make public the administration's formal position on the fuel tax, whose deferral ends in October.
In March he told the House subcommittee on aviation that the airline industry was 'now in a position to accommodate this tax increase.' Citing current aviation fuel prices that are at historically low levels, Murphy said that the tax would cost $407 million - less than 1 per cent of total costs - industry-wide. Other modes of transport had not benefited from a fuel tax deferral, and as airlines regain profitability, it is only fair for them to contribute.
Who can argue with that?
Gerald Greenwald, for one. The chairman of United Airlines appeared at the same hearing warning of such dire consequences as airline failures. In an interview, the former Chrysler Corp vice president adds that the argument of other modes being forced to shoulder what the airlines were reprieved from is not necessarily appropriate: 'What did the auto industry contribute? A four-cent-a-gallon tax at the pump. It went directly to the consumer. [The airline contribution] is a tax on jet fuel, directly on the airline. I'll trade for the equivalent of the auto industry tax anytime, and I won't ask for a deferral.'
Though the DOT believes that at least some of the tax will be passed on to passengers and shippers, Greenwald counters that 'there is no evidence of that.' Citing years of airline industry fare wars and yield declines, culminating in what Salomon Brothers analyst Julius Maldutis described as last January's 'stunning 8.3 per cent decline in average fares,' Greenwald told the congressional committee that the wage concessions that United won in last year's employee buy-out could be threatened by a fuel tax bill of as much as $80 million.
No one knows the real impact of the fuel surcharge. In the same report that cites January's decline in fares, Maldutis also points out that a fare stabilisation appears to have taken hold among US carriers, leading him to comment that 'we remain hopeful that a 2-3 per cent increase in yields is still possible and probable for 1995.' That, however, does not mitigate the concerns about fuel prices, whose 7.7 per cent decline in 1994 to 54.17 cents has been credited for reducing industry losses to $136 million from a 1993 level of $1 billion. A spike could unravel the embryonic rebound US airlines are experiencing, and, in fact, prices are beginning to edge up once again, with January showing a 0.8 per cent increase.
The harsh criticism that the Clinton administration policy on the reinstatement of the fuel tax has been mirrored in Congress. As of mid-April, the Air Transport Association had more than 40 co-sponsors in the House pushing for a permanent deferral of the tax. 'It would have been great to have the administration on board,' says Chris Chiames of the ATA. 'But given the fact that we are developing more support [in Congress], and the current political climate, it doesn't work against us.'
This may be true. But even in the current political climate, which has brought in a proposed $198 billion federal tax cut, choices will have to be made. What is happening, says one congressional source, is that the insistence on instituting the fuel tax is one way to 'punch some holes' in the Republican budget proposal. The budget will have to cover any tax cuts with spending cuts - a balancing act that may leave airlines the lesser priority compared to, say, subsidies to farmers.
The debate gets into full swing in September. At that point, several existing taxes, including a passenger head tax, are brought up for renewal and the 1996 budget proposal from both houses of Congress go up for reconciliation. The deferral, if it is to come, will be attached to the budget bill. 'This game hasn't even begun,' says Elliot Seiden, Northwest Airlines senior vice president of government and international affairs.
The debate gets into full swing in September. At that point, several existing taxes, including a passenger head tax, are brought up for renewal and the 1996 budget proposal from both houses of Congress go up for reconciliation. The deferral, if it is to come, will be attached to the budget bill. 'This game hasn't even begun,' says Elliot Seiden, Northwest Airlines senior vice president of government and international affairs.
Source: Airline Business
