Monday, May 14, 2007

Buffett Battles Bush as Corporate-Jet Owners Fight Tax Increase (Bloomberg)

May 14 (Bloomberg) -- U.S. airlines, which already share the sky with corporate jets, are pushing to share their tax burden too.

By John Hughes and Jonathan D. Salant

President George W. Bush is proposing to cut the amount passenger carriers such as American Airlines and Continental Airlines pay in federal taxes each year by $1.68 billion. Most of that obligation would be shifted to small-jet operators, including General Motors Corp., Exxon Mobil Corp. and NetJets Inc., the business-jet charter company owned by Warren Buffett's Berkshire Hathaway Inc. The Bush plan has touched off a fierce battle in Congress that cuts across partisan lines, with the carriers' trade association being outspent by an opposition that includes groups in rural communities that rely on smaller air-service companies.

Lawmakers say they are being inundated with calls and letters. ``I don't walk, breathe or move without being assaulted by very strong opinions on the subject,'' says Representative John Mica of Florida, the top Republican on the House Transportation Committee.

Under current law, the government collects $2,015 in taxes every time a full Boeing Co. 757-200 jet flies between New York and Florida, according to the Federal Aviation Administration. A General Dynamics Corp. Gulfstream 4 business jet flying a similar route -- and requiring the same amount of attention from air-traffic controllers -- pays $236, agency figures show.

Sharing the Burden

Under Bush's plan, the operators of the Boeing jet would pay $1,298, and owners of the Gulfstream would pay $837.

``We absolutely have been overpaying,'' says James May, 61, president of the Air Transport Association, the Washington trade group for major airlines. ``Our passengers should not be forced to continue to subsidize corporate aircraft.'' The eight largest U.S. airlines turned a profit last year for the first time since 2000.

The shift should be done for fairness, says FAA Administrator Marion Blakey: ``More small aircraft up there, fewer people in each one, and yet the costs of the FAA are the same, regardless, when you're trying to move a plane.''

Passenger airlines and their customers currently pay $7.68 billion in taxes and fees. Bush would reduce this amount by scuttling taxes that include a 7.5 percent ticket charge and introducing a fee that, coupled with other levies, would raise only $6 billion from the airlines.

Making Up the Difference

To make up the difference, he would increase fuel taxes on corporate and turbojet operators, as well as charters, air taxis and ``fractional'' jet owners, including customers of Woodbridge, New Jersey-based NetJets. Calls to NetJets weren't returned. Buffett, 76, didn't respond to a request for comment made through an assistant at his headquarters in Omaha, Nebraska.

Should Bush's proposal become law, the impact on owners and operators of the small jets ``is going to be significant,'' says Ed Bolen, whose Washington-based National Business Aviation Association trade group represents more than 8,000 companies including NetJets, GM and Exxon Mobil.

Bolen, 47, says ``a significant portion'' of small-aircraft users would cut back on or even stop flying. Businesses' access to these planes is ``the reason that they are able to keep their headquarters in small towns and rural communities,'' he says. ``It's the reason they are able to locate plants and facilities in those areas.''

Airline Congestion

Bolen says the major carriers should bear the brunt of the taxes because ``the cost of the system is largely related to the congestion that the airlines impose.''

The Senate Commerce Committee is scheduled to vote this week on a plan, also opposed by Bolen's group, that would raise corporate fliers' taxes by $500 million, which is less than the Bush proposal. The Senate measure would also cut airline fees by $150 million.

The large airlines ``are carrying the majority of the costs'' now, says Senator Jay Rockefeller, the West Virginia Democrat who heads the Senate Commerce subcommittee on aviation. ``Two-thirds of the planes in the sky are private jets. They've got to do more.'' Rockefeller, 69, and Mississippi Republican Trent Lott, 65, are the chief sponsors of the Commerce Committee measure.

To fight efforts to make them pay more, business-jet users have allied with farmers, air-ambulance drivers and rural areas that depend on small planes.

Free Flights for Sick People

Rol Murrow of the Tulsa, Oklahoma-based Air Care Alliance, which represents groups that arrange free flights on small planes for sick people, says the Bush proposal would mean fewer people could afford to donate the flights.

Republican Representative Robin Hayes of North Carolina, a private pilot, says higher taxes might discourage race-car drivers from using the Nascar fleet of private jets in his district. And Representative Leonard Boswell, an Iowa Democrat, says Bush's plan would hurt predominantly rural states.

GM, the largest U.S. automaker, would have to trim costs in other areas, says Janine Fruehan, a spokeswoman for the Detroit- based firm. Gantt Walton, a spokesman for Irving, Texas-based Exxon Mobil, the world's largest oil company, referred questions to Bolen's group.

Opponents of the Bush plan can back up their efforts with political money. The Frederick, Maryland-based Aircraft Owners and Pilots Association, which represents private pilots, contributed $940,100 to federal candidates for the 2006 elections. That's more than the combined donations of Fort Worth, Texas-based AMR Corp.'s American, the world's largest airline; Houston-based Continental, the fourth-largest carrier; and the major airlines' Air Transport Association trade group.

More Than Double

The private pilots' group spent $11 million on lobbying in 2005-06, while Bolen's national business-aviation trade association spent $2 million. The $13 million total is more than double the $6 million spent by the airlines' trade group in the same two-year period.

The big airlines contributed $2.4 million to congressional candidates in 2005-06 and spent $32 million on lobbying, according to the Center for Responsive Politics, a Washington- based research organization.

The private pilots' association and Bolen's group are funding the Alliance for Aviation Across America, made up of small-plane users and rural interests who oppose the Bush plan. Members include the National Farmers Union and the League of Rural Voters.

The alliance is run by the Law Media Group, a Washington lobbying firm. Gil Meneses, who works out of Law Media's office, helped push an effort by consumers to enact an airline-passenger bill of rights. He says his work on the consumer legislation was voluntary and unconnected to Law Media's lobbying for small- plane groups.

The private-pilots' group also hired former Transportation Department Inspector General Kenneth Mead and the law firm of former Republican National Committee Chairman Edward Gillespie and Jack Quinn, a former aide to President Bill Clinton.

Mead, 57, disputes the administration's efforts to portray its proposed increase as a matter of fairness between the airlines and small-plane users. ``It is all about money,'' he says.

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