This week, New Jersey state lawmakers advanced a bill out of committee that would close special tax exemptions for airlines in the state[i]and bring New Jersey more in line with the standards for jet fuel taxes in other states.[ii]The revenue from closing this loophole would be used for a public transit extension to the Newark airport. Since Newark is one of United’s major hubs, making it easier to get to the airport would presumably not only benefit United’s customers, but ease traffic congestion and pollution in the neighborhood surrounding the airport.
Given United’s recent much-ballyhooed announcement about being committed to lowering greenhouse gas emissions and using less jet fuel, you would think they would at least take a neutral stance towards an incentive to do just that, while also supporting public transportation. After all, every New Jersey resident got a 23-cent fuel tax hike in 2016 to help raise $1.6 billion to fund transportation infrastructure.[iii] Shouldn’t United Air Lines want to pay their fair share towards a cleaner, better-running New Jersey as well?
Unfortunately, that doesn’t seem to be the case. Instead, United is using overt threats and misinformation to try to avoid a tax increase that would amount to 0.05% of their annual revenue.[iv]Here is the truth about some of United’s more disingenuous claims:
United threatens to “limit growth” in Newark if jet fuel bill passes.[v]
The truth is, “limiting growth” is a perennial threat that airlines use any time an airport, city, or state is thinking of doing something that might impact airline profits, regardless of whether the change would benefit the airport or local residents. Most of the time, it’s an empty threat.
United executives have repeatedly said that they intend to grow at Newark, and have boasted that they are the most profitable airline in the critical New York market. Scott Kirby, United’s President, told employees in 2017 that “we have about 15 percent [profit] margins here in Newark … we estimate Delta in New York has a 4 percent profit margin, even when times are good. And American is somewhere in between.”[vi]
The $20 million annual cost of closing the jet fuel tax loophole will be just 3 percent of the $688 million a year that United takes in on its Newark to SFO flight route alone.[vii] United Airlines is a sophisticated business that knows how the math works out. They’d just rather not pay any taxes at all, and they’re willing to threaten New Jerseyans to get their way.
What’s more, even if United *did* reduce their flights going in and out of Newark, that might not be such a bad thing for New Jersey residents. Newark has some of the highest average fares in the country, so maybe a little competition from other airlines would be a good thing for passengers. We’ve seen this benefit for passengers in other airports across the country. After United predecessor Continental Airlines decreased its operations at the Cleveland airport, fares fell by an average of 41% between late 2013 and late 2017.[viii]
United says closing New Jersey’s airline fuel tax exemption will put the state at a competitive disadvantage.[ix]
New Jersey has some of the lowest jet fuel taxes in the country. Only two other states only tax fuel burned in-state like New Jersey does, so closing that exemption would actually bring New Jersey much more in line with what other neighboring states are doing. New York is the only other state on the East Coast that uses the “burn-off” tax exemption that New Jersey does, but New York’s jet fuel tax is 6.8 cents per gallon[x], 70% higher than New Jersey’s current jet fuel tax.[xi] The difference in available taxes for projects that benefits the residents of New Jersey is already a competitive disadvantage.
The start of a trend?
The move by the New Jersey legislature to consider closing this loophole is an important step. United Airlines made more than $2 billion in profit last year. Recent research suggested that, nationally, states lose roughly $1 billion in jet fuel tax giveaways. As New Jersey takes an important step towards rectifying this issue, other states should examine their own jet fuel tax policies and consider whether, like in New Jersey, there is an opportunity to close loopholes, while funding important transit infrastructure projects that benefit everyone.
[i]https://www.politico.com/states/new-jersey/story/2018/09/13/united-airlines-fights-bill-to-hike-jet-fuel-taxes-for-path-extension-609638
[ii]https://taxfoundation.org/combined-effective-commercial-jet-fuel-tax-rates-and-fees-state/
[iii]https://www.nj.com/politics/index.ssf/2016/10/christie_signs_23-cent_gas_tax_road_funding_deal.html
[iv]The cost of closing the loophole is an estimated $20 million. 2017 revenue for United Airlines was $37.7 billion. $20 million/$37.7 billion is 0.05%.
[v]http://nj1015.com/nj-could-raise-taxes-on-united-airlines-by-20-million/
[vi]https://skift.com/2017/04/21/united-airlines-president-leaving-new-yorks-jfk-was-the-wrong-decision/
[vii]https://www.oag.com/blog/billion-dollar-route
[viii]https://www.cleveland.com/travel/index.ssf/2018/04/cleveland_hopkins_numbers_sinc.html
[ix]http://www.njbiz.com/article/20180913/NJBIZ01/180919930/lawmakers-seek-to-close-united-tax-break-airline-says-it-may-look-to-other-hubs
[x]https://www.tax.ny.gov/pdf/publications/multi/pub908.pdf
[xi]https://www.state.nj.us/treasury/taxation/pdf/other_forms/petroleum/Petroleumgrosstax.pdf