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Attachment C

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[[underline]] AIRWAYS TAXES [[/underline]]

We have conducted during the past year or so an intensive and reasonably successful campaign to speed up improvement of the airways system. The President told the Secretary of Transportation last fall to come up with a program to achieve this result. It is probable, however, that in all of the discussions of airline taxation that are going to take place in the Ways and Means Committee hearings this issue will be sharpened up and disposed of. I hope it turns out that way because in this field, as well as so many others, we need to hurry. Our traffic control delays are increasing, and we have been required to cut the performance of our jets in half below 10,000 feet. The situation will inevitably get worse before it gets better. The government apparently will not move any more rapidly unless it is given additional money by someone. Through the 5% ticket tax we will contribute over $200 million next year. We will argue as effectively as we can that no additional taxes should be imposed upon us because we are already paying our share, even of an expanded airways program. This involves us in arguing some issues on which our position is a little weak. The Directors should authorize us to throw in an additional 2% ticket tax, to be effective for the next five years, if the figures as ultimately developed by the Committee indicate that this is necessary.

Our heavy emphasis should be laid upon the necessity for general aviation to begin to pay its way. We have developed a tax system for general aviation based upon annual license fees. A very brief description of it is attached. We expect that it would yield approximately $92 million per year. Enactment of this, of course, would be coupled with the repeal of the present 2-cent gasoline tax.

There is another user charge issue lurking among the various proposals to tax international passengers. As had been pointed out, there is much talk of assessing international passengers a 5 or 10% ticket tax. No one has been very explicit as to the theory behind the tax. If it is designed to discourage travel, it is indefensible, since it will discourage only those who do not have much money. If it is designed as a general revenue measure, it is also indefensible, since it would constitute the worse possible discrimination against those who desire or are required to go abroad. If it is a user charge for the use of aviation facilities, we are pushed into a most difficult international issue. Our industry has always taken the position that user charges for aviation facilities should not be assessed against international passengers because of the fact that foreign government retaliation would be deliberately invited. Our government has been studying this question