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NCAAIA Newsletter - Nov 2018

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States Cut Taxes On Jet Fuel. Why That's Not A Corporate Give-Away, But Sound Policy

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It is estimated that more than 30 million Americans flew this past Thanksgiving travel period, and tens of millions more will take to the skies throughout the upcoming holiday season. Fortunately for the flying public, lawmakers in states that are home to major airline hubs are taking action to eliminate hidden taxes that inflate the cost of air travel.

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Most recently, Georgia lawmakers met days after the midterm elections to give final approval to legislation that repeals that state’s jet fuel tax, though not permanently. That move was derided by some Georgia lawmakers, such as Senator Josh McKoon (R-Columbus), who called it “corporate welfare.”

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Georgia isn’t the only state to repeal its jet fuel tax recently. North Carolina, like the Peach State, is also home to rapidly growing urban centers and a major airline hub in Charlotte Douglas International Airport (CLT). North Carolina lawmakers are currently debating whether to extend or make permanent the jet fuel tax exemption enacted there in 2015

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Tar Heel State legislators would do well to make that exemption permanent, just like their counterparts in Georgia are looking to do in 2019. Taxation of business inputs is one of the biggest problems with state sales taxes today, and jet fuel is a major business input (accounting for 20-40% of airline operating costs) whose cost is passed along to the consumer. As such, jet fuel should not be subject to state taxation. The taxation of jet fuel and other business inputs leads to what is called “tax pyramiding,” which translates into higher and less transparent consumer costs. Scott Drenkard, an economist at the non-partisan Tax Foundation explains

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