Airport and Airway Trust Fund:

Issues Raised by Proposal to Replace the Airline Ticket Tax

RCED-97-23: Published: Dec 9, 1996. Publicly Released: Dec 9, 1996.

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John H. Anderson, Jr
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Pursuant to a congressional request, GAO examined the proposal by a coalition of the seven largest U.S. airlines to replace the ticket tax with user fees, focusing on: (1) whether the ticket tax should be replaced by a different fee system; (2) what the potential competitive impacts of the fees proposed by the coalition airlines would be; (3) what factors need to be considered if a new fee system were to be developed; and (4) the implications on the Federal Aviation Administration's (FAA) budget of reinstating or not reinstating the taxes that finance the Airport and Airway Trust Fund.

GAO found that: (1) because the ticket tax is based on the fares paid by travelers and not an allocation of actual FAA costs, it may not fairly allocate the system's costs among the users; (2) the coalition airlines' proposal to replace the ticket tax with user fees only incorporates factors that would substantially increase the fees paid by low-fare and small airlines and decrease the fees paid by the seven coalition airlines; (3) the proposal would dramatically redistribute the cost burden among airlines and could have substantial implications for domestic competition; (4) any replacement system for the ticket tax would need to account for the wide range of costs incurred by FAA in managing the airport and airway system; (5) the views of all affected parties, not just any particular group of airlines, would need to be included in assessing the mechanisms for financing the airport and airway system; and (6) Congress established a commission to study how best to meet FAA financing needs which will help ensure that, in the long term, FAA has a secure funding source, commercial users of the system pay their fair share, and a strong, competitive airline industry continues to exist.

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