Budget: mixed bag for business

October 03, 1990|By New York Times

The deficit-reduction plan agreed upon by President Bush 9 and congressional negotiators over the weekend caused the : stock market to jump and brought praise from the Business ! Roundtable as "necessary" and "good for the country."

6 While most businesses seem willing to accept new taxes if they B would strengthen the U.S. economy by reducing the federal : deficit -- small business would even benefit from investment = incentives -- the impact of the budget pact would vary by : industry.

Here is a look at how some key sectors might be affected.


AIRLINES: Bigger burden for fliers

The airline industry responded angrily to the proposed budget package, saying its tax provisions would add $1.5 billion annually to the industry's costs.

Most, but not all, of that amount would be passed on to airline customers.

The budget deal increases the tax on passenger tickets to 10 percent from the current 8 percent.

On a typical ticket of about $400, the tax would go from $32 to $40.

Because the tax is calculated after the ticket's price is set, it is paid directly by the consumer.

The higher costs of flying might cause some drop in business for the airlines, but that effect is thought likely to be relatively modest.

But the airlines denounced the fact that the increases in ticket taxes are not being set aside for use on aviation programs, such as building new runways, installing better air traffic control radars, and paying controllers.

In the past, the entire ticket tax had been put into a trust fund earmarked for aviation programs. The increased ticket taxes instead are being used to reduce the deficit.

The airlines are also affected by a tax of 2 cents a gallon on all petroleum products. The tax would mark the first time jet fuel has been taxed by the federal government.

The Air Transport Association said that the 2-cent tax would cost the airlines $300 million. Like other fuel costs, these are not always passed directly to customers.

Robert J. Aaronson, president of the airline group, said the new taxes, which come on top of sharp recent increases in the cost of fuel, would "seriously threaten" the industry.

ALCOHOL: Soft on beer, hard on liquor

The planned rise in alcohol taxes may cause a slight drop in sales of beer, but they are likely to have a more severe impact on the already-falling sales of wine and distilled spirits, like scotch and bourbon, industry analysts say.

The 16-cent increase in the beer tax was far lower than the industry had expected. A previous proposal called for a 64-cent increase for a six-pack.

Beer is the largest volume seller in the alcohol business, making up about 86 percent of the 6.75 billion gallons of alcoholic beverages sold last year, according to Impact Databank, an industry publication.

Last year, beer drinkers paid about $1.7 billion in federal excise taxes, or 16 cents on a six pack of beer, which typically retails between $3 and $4.

The Beer Institute, a trade group, has estimated that a doubling of the excise tax would lead to a 4 percent drop in sales.

Beer sales have been growing modestly for the last 20 years but have begun to flatten in the last year or so. In 1989, beer sales rose about four-tenths of 1 percent.

Table wine taxes would rise to $1.27 a gallon from 17 cents, under the proposed budget accord. That is equivalent to 25 cents per 750-milliliter bottle, up from 3 cents.

For distilled spirits, taxes would rise to $14 a 100-proof gallon from $12.50. The price impact per bottle would vary with different drinks.

The wine industry, whose sales declined at a nearly 1 percent annual rate for most of the 1980s, and the liquor business, which declined at double that in the period, may be further hurt by higher taxes.

TOBACCO: Possible push for discounts

The proposed rise in cigarette excise taxes, which was less than the industry expected, could hurt tobacco sales over the next few years.

The longer-term effect may be to prod the companies to more aggressively market cut-priced cigarettes that are somewhat less profitable than well-known brands, say industry officials and securities analysts.

An earlier budget proposal called for a 16-cent increase on each pack, so the 8-cent rise over three years seemed moderate.

The proposed tax increase, which is still open to revision by Congress, is expected to raise about $5.9 billion over the next five years.

Cigarette sales have declined for more than 25 years, but especially in the last decade, because of health concerns, anti-smoking campaigns, higher taxes and regular price increases.

It is an industry rule of thumb that a 10 percent rise in retail prices is likely to lead to a 3 percent decline in sales.

Today, a pack of cigarettes costs an average $1.60.

Smokers are set to pay 20 cents in federal tax next year and 24 cents in 1993.

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