Use for deficit could slow modernization


October 15, 1990|By Tom Belden | Tom Belden,1990 Knight-Ridder News Service

Amid the recent debate over the federal budget, little attention was focused on the effect of an array of proposed tax increases on airline passengers.

Organizations that usually support federal taxes benefiting the air travel system are outraged by what they say could be the unwarranted use of air travelers tohelp reduce the federal deficit -- at a time when soaring fuel costs have the industry awash in red ink.

In particular, the groups say they are worried that a diversion of airline-ticket tax money into the government's general revenues could lead to reduced spending in the future on airports and the air-traffic control system.

Congressional decisions already made this year, and others still being debated, could add 11 percent to 18 percent to the cost of a domestic airline ticket. Current taxes add 8 percent to the cost of a ticket.

The higher costs would include an increase in the ticket tax from 8 percent to 10 percent and a proposed "passenger facilities charge" that major airports could collect to pay for specific capital improvements.

Under competing proposals, the passenger facilities charge could be $6 to $12 per round-trip ticket.

The deficit-reduction plan passed by Congress last week was short on details -- including tax increases. But any budget accord is expected to include added taxes and fees for airline travelers, say airline industry lobbyists.

Combining, for example, a tax of 10 percent and a passenger facilities charge of $12 would add about 18 percent to the cost of a $158 round-trip ticket. On a $1,200 ticket, the extra cost would be about 11 percent.

On trans-Atlantic trips, the extra charges collected by the end of the year could be a combination of the existing 8 percent tax on the ticket itself and fees for different government agencies totaling as much as $23. That compares with an 8 percent tax and fees of $21 on trans-Atlantic tickets now.

Besides all the taxes paid directly by passengers themselves, airlines face increases in jet fuel and aviation gasoline taxes.

Under a deficit-reduction plan that Congress rejected two weeks ago, for example, those taxes would have gone up 2 1/2 cents a gallon.

All these additional taxes and fees come just as the airlines have raised fares to pass on to travelers some of the increased fuel costs caused by the crisis in the Persian Gulf.

Jet fuel has almost doubled in price since Iraq's Aug. 2 invasion of Kuwait.

The higher fuel costs and the poor economy are ganging up on the airlines to create what is expected to be a record industry loss of $1.25 billion to $1.5 billion this year, according to estimates of industry analysts.

The airlines' losses in the fourth quarter alone are expected to top $2 billion.

Despite their own travails, major airlines support some of the new tax proposals.

Naturally, the airlines don't like to see taxes go up because consumers often blame the carriers for the cost the taxes add to a ticket. But the airlines generally believe in the principle of user fees to pay for the air travel system.

For the last two decades, revenue from all of the airline-related taxes has gone into funds or to agencies that directly benefit air travel, including the Federal Aviation Administration and the customs and immigration services.

Airlines and groups representing frequent fliers have been angered by the federal budget writers' proposals to use revenue from the 2-percentage-point increase in the ticket tax. That revenue would total about $11.8 billion over five years.

The budget negotiators proposed to divert that money into the federal general revenue fund, rather than the Aviation Trust Fund, where the 8 percent ticket tax now goes.

"This sets a dangerous precedent that could spell the beginning of the end of dedicated trust funds and the user-pays principle of financing transportation infrastructure," said Drew Steketee, executive director of the Partnership for Improved Air Travel.

For several years the airlines and others have complained that the aviation fund's $7.6 billion surplus has been used by Congress and the White House to reduce estimates of the federal deficit.

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