Airline Rescue Package Should Provide Tax Relief

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Posted by Mike Palicz on Thursday, March 19th, 2020, 1:09 PM PERMALINK

On Wednesday, President Trump announced that the airline industry “would be the number one priority” for a federal assistance package in response to a demand drop-off following government restrictions on travel to combat the Coronavirus outbreak.

The airline industry now faces a dire situation as flight cancellations are rapidly outpacing new flight bookings. Industry trade groups are estimating that revenue loss could total $113 billion globally. In response to the crisis, Treasury Secretary Steven Mnuchin was on Capitol Hill Tuesday meeting with Senators to discuss the terms of a rescue package for the industry.

As the Trump administration and Congress weigh options for an aid package, providing tax relief for airline companies should be at the forefront of policy options.

Specifically, this would include the temporary repeal of excise taxes paid by airline companies. This would include excise taxes on jet fuel, cargo and passenger tickets. Providing relief on excise taxes would also crucially increase consumer demand that has plummeted from the virus’s outbreak. Taxes currently make up over 20% of the cost of a domestic airline ticket. Temporary tax relief will lower airfare costs to increase consumer demand after the outbreak is contained and travel restrictions are lifted. 

Rebates of these same excise taxes that have already been paid by airlines should also be considered. Monthly Treasury reports show that collections of these taxes paid into the Airport and Airway Trust Fund totaled close to $4.3 billion through February. Given the sharp demand drop off experienced in March, it is reasonable to assume that total collections thus far are not significantly higher. Currently, the trust fund has an uncommitted balance approaching $6.5 billion. This means a rebate of excise taxes already collected in 2020 could be paid for with the uncommitted balance of the trust fund.

Given the AATF is funded on a user fee model, the principle should be maintained in reverse to fund any airline relief package. This will reduce the need to fund a package with transfers from general revenue, thus reducing the burden placed upon taxpayers in any relief package.

Photo Credit: Jason O'Halloran

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