Unlike many other countries, the U.S. does not maintain a state-owned airline. In fact, smart federal regulatory reforms based on private competition instituted here over 40 years ago helped lead a nationwide – and worldwide – revolution in affordable, accessible air travel. Now, with an existential crisis facing our commercial air sector, first precipitated by government bans on travel, smart reforms must lead the way again. Tax policy is a good place to start.
As NTU has noted, the typical airfare can carry a much higher tax and government-mandated rate than a middle-class household might encounter on a 1040 federal income tax return. And just as we have urged policymakers to provide retrospective as well as prospective tax relief to help workers, small businesses, and self-employed Americans through the COVID-19 crisis, the same type of policy can help the 750,000 employees directly employed in the U.S. air travel sector.
Well-written tax law has ensured a healthy employment and investment outlook for this critical area of our economy before. The most recent example is the Tax Cuts and Jobs Act, whose lower rates and full expensing provisions, according to industry experts, were the type of changes to help encourage capital expenditures such as aircraft purchases. Unfortunately, news reports indicate that airlines and aircraft manufacturers are already having to downsize billions of dollars in orders and contract expectations due to the downturn in air travel – again, one that occurred in part because the federal government decided to restrict the conduct of business for public health reasons.
While not a complete solution to this problem, easing tax burdens can help here just as it can in numerous other areas of the economy, where all types of businesses and their employees need to hold on to their hard-earned money even more urgently now. In fact, given the unusually heavy tax load that air travel bears, an immediate adjustment could have a more salutary effect than elsewhere in bolstering investor and consumer confidence, not to mention the cash positions that could help airlines and their employees cope with economic instability.
Even better, the logistics of effecting tax relief would be less difficult. Congress could choose to rebate the roughly $6 billion in federal air ticket, fuel, and cargo excise taxes collected through the first quarter of this year – and amount which, if current revenues are any indication, could be offset by the more than $6 billion in surplus collections in the Airport and Airway Trust Fund. Cargo carriers, upon which socially isolated America will heavily rely to help keep goods moving, could find this rebate useful for maintaining their operations at a high tempo. Providing additional tax relief going forward, however, will also be important as long as conditions brought about by travel bans and other edicts related to COVID-19 persist.
The just-released Senate draft of the third comprehensive COVID-19 legislative package contains, among other highly advisable tax provisions, the suspension of certain excise tax provisions going forward. This is a solid starting point for providing the kind of relief outlined above.
Public officials have difficult decisions ahead for protecting Americans from the spread of COVID-19, all while maintaining a healthy economy. An excise tax rebate and abatement can help to balance both these concerns.