While the airline industry claims to be heavily taxed – and they are, such as the 7.5% excise tax on domestic tickets – they are also subsidized through the tax code.
I’ve written in the past about the fuel tax subsidies that Delta receives from the state of Georgia, and the subsidies it received from Pennsylvania for its oil refinery. And that’s entirely apart from the pension liabilities that US Airways, Delta, and United offloaded onto the federal government.
One feature of the US tax code is the ability to write off net operating losses in one year against taxes owed in another. The American Recovery and Reinvestment Act (‘stimulus’) changed this from merely being carry forwards to offering carry back as up to 5 years as well.
At the end of 2013 Delta had $15 billion in net operating loss carry forwards. United had over $10 billion accrued.
State tax rules vary and may cap writeoffs.
Is it a subsidy to write off past losses in future years (or to take current losses and seek a refund based on previous year taxes paid)? I suppose that depends on your point of view, it seems reasonably fair to me to offer — that you effectively don’t pay taxes on the basis of single year performance but net performance over a period of years. But those accrued losses mean that in a given year an airline won’t pay tax on its profits, while other airlines will, making it possible to accumulate capital at a faster rate.
At a 35% tax rate airline industry accumulated net operating losses of about $30 billion are worth over $10 billion in tax savings.
Another reason that sorting through ‘fairness’ as it relates to international airline competition is a nearly impossible thicket, and US airlines should shut up about subsidies.