Senate Strikes Tax on Foreign Airlines

In a round of late-night deal-making, before passing a sweeping tax reform bill, the U.S. Senate dropped a tax bill provision that would have levied a tax on some international airlines, including three major Gulf carriers—Emirates, Etihad and Qatar.

"A half-baked measure that could've impacted both tax reform and travel was recklessly tossed on the Senate's lap, and wisely disposed of,” said U.S. Travel Association Executive Vice President Jonathan Grella in a statement.

While it was estimated that the tax bill provision could have raised $200 million over 10 years if it passed, many believed the provision, which was introduced by Georgia Senator Jonny Isakson targeted Middle East carriers as part of a battle being waged by three legacy U.S. carriers against their Gulf rivals. Isakson represents Delta Air Lines’ home state.

The Partnership for Open & Fair Skies, which represents American, Delta and United, as well as a number of airline unions, has said that the Gulf carriers are propped up by unfair subsidies that could affect American jobs.

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Critics of the provision worried that enacting it could lead to a domino effect of reciprocal airline taxes around the world. While airlines typically only pay tax in their home countries, this provision could have led other nations to follow the U.S., by imposing their own taxes on inbound flights.

“Foreign governments—even those not directly affected by the proposed language—could be tempted to follow the U.S. example and impose reciprocal taxes,” said Perry Flint, a spokesperson for the International Air Transport Association (IATA), in a statement to CNBC.

The provision, while supported by the three legacy carriers, drew its share of critics, including IATA, the U.S. Travel Association, United Parcel Service and the U.S. Airlines for Open Skies (USAOS), which represents Atlas Air Worldwide, FedEx, Hawaiian Airlines and JetBlue.

The removal of the language is being called “a major blow to Delta Air Lines on one of its top D.C. policy priorities,” according to the Atlanta Journal-Constitution.

Grella of U.S. Travel is calling it the "most significant moment in the three-year war on Open Skies. Bipartisan lawmakers have wisely rejected this last-ditch effort to stymie connectivity and choice. “

In separate but related news, Bloomberg is reporting that some lawmakers have penned a letter asking that the Department of Transportation “moderate” the Open Skies debate to determine if it requires “federal action.”

A DOT decision “would allow Congress and the White House ‘to develop a fact-based response’ to the allegations, ‘rather than responding to the politically-charged rhetoric,’” reports Bloomberg. The letter, drafted by Tennessee Republican David Kustoff, has been signed by at least 14 Republicans and two Democrats and will be sent to Secretary of State Rex Tillerson, Secretary of Transportation Elaine Chao and Secretary of Commerce Wilbur Ross.

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In response to the letter, Jill Zuckman, spokesperson for the Partnership for Open & Fair Skies said, “This is nothing more than an effort to delay and distract from the real issue—American jobs are on the chopping block because of trade cheating by the United Arab Emirates and Qatar.”

Reportedly the letter urges caution when “meddling” in Open Skies agreements with the Gulf states, as it could jeopardize agreements with other nations and put at risk billions of dollars for the airline industry, U.S. aviation manufacturing and tourism to the United States.

“We understand that there are great American businesses on both sides of this issue," said Kustoff in a statement. "That is why we are clarifying that there is a legal process in place to resolve this dispute, enacted by Congress in 1974, which has been used more than 75 times.”