U.S. Airlines Square Off Over Ticket Tax

By ART PINE

July 12, 1997 12 AM PT

TIMES STAFF WRITER

WASHINGTON —

The nation’s airlines have become embroiled in a nasty dogfight over Congress’ efforts to extend the 10% airline ticket tax, with ordinary passengers likely to be caught in the cross-fire.

The skirmish, which involves sharply differing House and Senate proposals to extend the tax, has the nation’s seven largest airlines pitted against discount fliers such as Texas-based Southwest Airlines.

But it also could leave international travelers with a slew of additional taxes and fees, from an extra 10% levy on the U.S. portion of overseas flights to a $15.50 fee on each departure and arrival.

The 10% tax, which has been levied on domestic airline tickets since 1971, expires on Oct. 1. There never was much question that lawmakers would renew it: The fee raises $6 billion a year for the U.S. Treasury.

But congressional tax writers, anxious to glean more revenues to cover a round of promised tax cuts and a new health-insurance program for children, expanded the airline levy substantially in this year’s tax bill.

The real fight involves which airlines will suffer the brunt of the congressional push for additional revenues--and, since the taxes ultimately are passed on to consumers, which passengers will foot the bill.

On one side are the so-called Big Seven airlines--American, Continental, Delta, Northwest, TWA, United and U.S. Airways--all of them high-fliers that carry passengers to foreign countries as well as on domestic routes.

On the other are the smaller so-called discount airlines--Alaska, America West, Frontier, Southwest and AirTran--that fly only inside the United States, and depend on low prices to lure travelers from the bigger carriers.

Peter J. Davis, a Washington-based tax-policy analyst who served for years as an analyst with the congressional Joint Committee on Taxation, points out that this year’s skirmishing did not come out of the blue.

The Big Seven airlines have been trying to knock the 10% ticket tax out of the sky for years, contending it gives the discount carriers an edge. Because the discounters charge less, they pay less in taxes as well.

The larger airlines want Congress to replace the current 10% levy with a flat “head tax,” which would impose a single fee for each passenger, regardless of the ticket price. They proposed such a plan three years ago, but it failed to win major support.

During deliberations on the tax bill last month, however, the House Ways and Means Committee came up with a proposal that would shift more of the burden to the discount carriers, essentially by splitting the difference.

The measure, which ultimately won House approval, would slash the 10% ticket tax to 7.5% and make up the difference by imposing user fees: $2 a passenger on domestic flights and $15.50 each way on international trips.

The House bill also would slap a new 7.5% excise tax on credit-card issuers that award frequent-flier miles whenever a customer buys goods or services. (The tax would be paid by the card issuer, not the cardholder.)

But the smaller airlines struck back in the Senate Finance Committee, which crafted a proposal of its own that would not only preserve, but widen the advantage now held by the discount carriers.

The Finance Committee plan, which was included in the tax bill passed by the Senate last month, would renew the current 10% ticket tax and increase the fees on international trips.

Specifically, the Senate bill would apply the 10% tax to the domestic legs of international flights, which now are exempt. It also would raise the head tax on international flights to $16 per round trip, from $6 now.

The skirmishing over the rival measures has buffeted the airline industry, which already was encountering considerable turbulence in the financial markets. Investors rushed to dump their airline stocks.

Southwest Airlines ran ads in major newspapers accusing the Big Seven carriers of “Skyway Robbery” at passengers’ expense, calling it a “callous scheme” to force low-cost airlines to raise their fares.

On Wednesday, more than 1,000 pilots, mechanics and ground workers employed by large airlines staged a rally at the Capitol. (American Airlines offered two free tickets to workers who “volunteered” to come.)

It is not clear which side will prevail. Virtually all the carriers involved have facilities in districts that have key lawmakers on the tax-writing committees.

Rep. Bill Archer, the Republican chairman of the House Ways and Means Committee, is from Texas, which is home to Southwest. Democratic Sen. Carol Moseley-Braun comes from Chicago, home of American Airlines.

There have been signs of a compromise in the making. Senate leaders already have hinted they will drop the 10% levy on the domestic leg of international flights--though opponents say that is a token concession.

But the lawmakers also are loath to cut back the airline levies too sharply, for fear of leaving themselves short in financing either the broader tax cuts for individuals or the children’s health care provisions in the bill.

Meanwhile, both sides are continuing the fight. Says Elliot Seiden, vice president of Northwest Airlines, which is leading the battle for the larger airlines: “We’ve got a lot of work to do.”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Airline Ticket Taxes

Congress is considering rival provisions on how to extend the current 10% tax on airline tickets. Here are the differences between the Senate and House versions of the bill:

Ticket taxes

CURRENT

There is now a 10% federal tax on tickets for domestic flights.

HOUSE BILL

Reduces it to 7.5%, but imposes a user fee of $2 per passenger on each stop of a flight, rising to $3 by 2002.

SENATE BILL

Renews 10% tax, but trims it to 7.5% on flight to and from rural airports.

Foreign flights

CURRENT

No tax on inter-national trips or domestic flights that connect to them. Depar-ture fee of $6 on flights abroad.

HOUSE BILL

Raises the $6 fee to $15.50 applied to both departures and arrivals.