Excise taxes and the airport and airway trust fund, 1970-2002

Statistics of Income Bulletin, Winter, 2003 by Eric Henry

Federal receipts from aviation-related excise taxes for the Airport and Airway Trust Fund reached a level of $9.1 billion for Fiscal Year (FY) 2002. The FY 2002 receipts represented 13.1 percent of all excise taxes as compared to 3.3 percent for FY 1971 [1]. The Airport and Airway Trust Fund excise taxes were a reliable source of revenue for the Nation's aviation systems during the latter part of the 20th century. Receipts from these taxes continue to be the major source of revenue for the Federal Aviation Administration (FAA).

Legislative History

In 1970, Congress passed the Airport and Airway Development Act and the Airport and Airway Revenue Act. Congress initiated these two acts to deal with the inadequacy of the Nation's airport and airway systems in meeting current and future projected growth in aviation. The Airport and Airway Trust Fund, also known as the Aviation Trust Fund, was enacted by the latter act and was effective on July 1, 1970 [2,3]. The Airport and Airway Development Act of 1970 authorized Federal funds, $280 million a year for 5 years for airport development, and at least $250 million a year for 5 years for acquiring, establishing, and improving air navigational facilities. The Airport and Airway Revenue Act of 1970 authorized the Aviation Trust Fund to be comprised of aviation-related excise taxes to finance these activities. The excise taxes on aviation for the Airport and Airway Trust Fund included the existing taxes on aviation gasoline and passenger tickets on domestic flights, and three new taxes. The excise tax on aviation gasoline was created with the Revenue Act of 1932 (with a rate of 1 cent per gallon), and the excise tax on passenger tickets on domestic flights was created with the Revenue Act of 1941 (with a rate of 5 percent of the ticket) [4]. Both of these excise taxes were previously deposited into the general fund before the Airport and Airway Trust Fund was established. The three new taxes were on international passenger tickets, air-freight waybills (transportation of property by air, i.e, cargo), and annual aircraft registration.

The next major piece of legislative history came with the passage of the Airport Improvement Act of 1982 (Title V of the Tax Equity and Fiscal Responsibility Act of 1982). This was a crucial law for several reasons. First, the Airport and Airway Trust Fund had run its course of 10 years after amendments had lengthened its initial existence. Next, after October 9, 1980, aviation-related excise taxes could no longer be transferred to the Trust Fund, leaving the Fund to survive based only on its accumulated surplus from prior years (Figures A, B, and C). The Airport Improvement Act reestablished the Airport and Airway Trust Fund and placed $134 million into the fund, inasmuch as it could no longer receive monies from aviation excise taxes. The 1982 Act, along with subsequent legislation, also adjusted certain limitations and penalties, while still continuing to permit payments from the Trust Fund for operating and maintaining air navigation facilities. In addition, the act contained a provision allowing available funds to be used for noise compatibility planning and for carrying out noise compatibility programs previously authorized by the Aviation Safety and Noise Abatement Act of 1979.

The Omnibus Budget Reconciliation Act of 1990 increased aviation excise tax rates for transporting persons from 8 percent to 10 percent of the fare [5]. Rates for transporting property (cargo) increased from 5 percent to 6.25 percent of the fare. The effective date for these changes was November 30, 1990. This Act also increased the rate for noncommercial jet fuel from 14 cents to 17.5 cents per gallon.

The Taxpayers Relief Act

The Taxpayers Relief Act of 1997, effective October 1, 1997, extended aviation-related excise taxes for 10 more years (until September 30, 2007), providing a more stable source of revenue for the Airport and Airway Trust Fund. The Act also included other provisions as follows:

[] The domestic passenger tax:

* October 1, 1997, the rate was 9 percent of the fare, plus $1 per domestic flight segment.

* October 1, 1998, the rate was 8 percent of the fare, plus $2 per domestic flight segment.

* September 30, 1999 to December 31, 1999, the rate was 7.5 percent of the fare, plus $2.25 per domestic flight segment.

* January 1, 2000, the ticket tax remained at 7.5 percent, but with $2.50 per domestic flight segment.

* January 1, 2001, the ticket tax remained at 7.5 percent, but with $2.75 per domestic flight segment.

* January 1, 2002, the ticket tax remained at 7.5 percent, but with $3.00 per domestic flight segment.

* January 1, 2003, the $3.00 per domestic flight segment rate was indexed for inflation to the Consumer Price Index (CPI).

[] The international passenger tax:

* October 1, 1997, the international departure tax was $12.00 per passenger.

* October 1, 1997, a new international arrival tax was set at $12.00 per passenger.

* January 1, 1999, both taxes were indexed to the CPI.