[Congressional Record Volume 144, Number 146 (Wednesday, October 14, 1998)]
[Senate]
[Pages S12558-S12561]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. DORGAN:
  S. 2629. A bill to amend the Internal Revenue Code of 1986 to provide 
an investment credit to promote the availability of jet aircraft to 
underserved communities, to reduce the passenger tax rate on rural 
domestic flight segments, and for other purposes; to the Committee on 
Finance.


                   regional jet investment tax credit

 Mr. DORGAN. Mr. President, today I am introducing legislation 
to help bring much-needed regional jet service to underserved 
communities. This legislation is designed to help restore air service 
to underserved communities and to stimulate airline competition by 
offering an investment tax credit to new entrant carriers to provide 
regional jet service to underserved markets. My bill also significantly 
reduces the current airline ticket tax on passengers flying in and out 
of rural America. Together, these tax incentives will encourage new 
entrants to enter thinner rural markets.
  This legislation has two objectives: (A) incentivize the purchase and 
deployment of regional jets for under-served markets; and (B) stimulate 
competition in rural areas by providing financial incentives for new 
entrants to serve underserved markets with regional jets. Using tax 
credits is a fair and effective means to accomplish these goals.
  Most small communities have not benefitted from airline deregulation. 
In fact, airline deregulation has been a steady decline for much of 
rural America. Since 1978, when the Congress deregulated the airline 
industry, more than 30 small communities have had jet service replaced 
with turbo prop service; out of the 320 small communities served by a 
major airline in 1978 declined from 213 to 33 by 1995; and the number 
of small communities receiving service to only one major hub airport 
nearly doubled, increasing from 79 in 1978 to 174 in 1995.
  Countless studies from the General Accounting Office and the U.S. 
Department of Transportation have documented that as the airline 
industry grows more and more concentrated under deregulation, small 
rural communities are being left behind with less service and higher 
fares. Several GAO studies have pointed to the correlation between 
industry concentration and higher air fares and that small rural 
communities are being hit especially hard as a result of the chilling 
of competition in the industry. In 1990, the GAO identified several 
market barriers thwarting the emergence of competition. In 1996, the 
GAO found that not only do the same problems continue to exist, but 
have gotten worse.
  In the present deregulated environment, small rural communities see 
very little to give them hope that air service will improve. The advent 
of regional jets holds some promise, but most RJs are presently being 
purchased by the major carriers who are using them to serve high 
density markets. Thus, if air service to rural America is going to be 
revitalized, we must find a way to incentivize the deployment of 
regional jets in underserved markets.
  Last August, Northwest Airlines had a pilot strike and therefore a 
shutdown of their airline service. That might not have meant much to 
some. In some airports, Northwest was one of a number of carriers that 
was serving certain airports and serving passengers. But in

[[Page S12559]]

North Dakota, the State which I represent, Northwest Airlines was the 
only airline providing jet service to my State. That is a very 
different picture than the last time we had an airline strike, which 
was over 25 years ago.
  Nearly a quarter of a century ago when Northwest had another strike 
and a shutdown prior to deregulation of the airlines, we had five 
different airline companies flying jets into the State of North Dakota. 
At roughly the same time, we had folks in Congress saying: ``What we 
really need to do is foster competition. We need to deregulate the 
airline industry.'' Thus, Congress deregulated the airline industry 
about 20 years ago. I wasn't here at the time, but the results for 
North Dakota was that we went from five jet carriers to one and we pay 
some of the highest fares of anywhere in the country.
  All those folks who swallowed the goal to deregulation in order to 
stimulate competition are now choking on the word ``competition.'' 
Today, stimulating competition is likened to re-regulation. What a 
twist. But, the fact is that competition is more the exception than the 
rule.
  If you live in Chicago and you are flying to New York or Los Angeles, 
God bless you, because you are going to have a lot of carriers to 
choose from and you are going to find very inexpensive ticket prices. 
You have a choice of carriers and ticket prices that are very 
attractive to you. You live in a city with millions and millions of 
people and you want to fly to another city with millions and millions 
of people. This is not an awfully bad deal for you; more choices and 
low fares. But if you get beyond those cities and ask how has this 
airline deregulation affected other Americans, what you will find is 
less selection, fewer choices, and higher prices.
  North Dakota is just one example, and the recent shutdown of our 
state's only jet carrier highlighted the problem. When the strike was 
called and the airline shut down, just like that, an entire State lost 
all of its jet service.
  A complete shutdown of all jet service chokes the economy very 
quickly. People can't move in and out. Now, I happen to think Northwest 
is a good carrier. I believe the same about all the major carriers. 
Most of them are well-run, good companies.
  What I do not admire is what they have done by retreating into 
regional monopolies--dominating the access points of our Nation's air 
transportation system. The major carriers have retreated into fortress 
hubs where one airline controls 60 or 70 or 80 percent of all the 
traffic at a major hub airport. With that level of market dominance, 
does anyone believe that another carrier is going to be able to come in 
and take them on? Competition is not flourishing. It's dying. This is 
not a free market--new entrants cannot access these dominated hubs and 
the result is that we now have regional monopolies without any 
regulation.
  What sense does that make, to have monopolies without regulation? The 
minute I say ``regulation,'' we have people here having apoplectic 
seizures on the floor of the Senate. Oh, Lord, we cannot talk about 
``regulation!'' I am not standing here today talking about regulation 
and I am not suggesting to re-regulate the airlines. All I want to do 
is see if we can provide some sort of industrial-strength vitamin B-12 
shot right in the rump of those airlines to see if we cannot get them 
competing again. How do we do that? We do it by creating the conditions 
that require competition. This legislation is one attempt to do just 
that.
  In order to encourage new startup regional jet service, I am 
proposing a 10 percent investment tax credit for regional jet 
purchases. That is, those startup companies that want to begin regional 
jet service to fly these new regional jets between certain cities and 
hubs that are not now served with regional jet service, we would say to 
them that we will help with a 10 percent investment tax credit on the 
purchase or lease of those regional jets. We will help because we want 
to provide incentives for the establishment of regional jet service 
once again in our country.
  Under this legislation, qualifying carriers would be eligible for an 
investment tax credit--up to ten percent of the purchase or lease 
price--of regional jet aircraft that are used primarily to serve under-
served markets. To receive the investment tax credit, an air carrier 
must have less than $10 billion annual revenue passenger miles and the 
aircraft for which the tax credit applies must be used primarily (over 
50% of its flight segments) to serve underserved markets for 5 years. 
An under-served market is defined as a community served by an airport 
with fewer than 60,000 annual emplanements.
  The investment tax credit would be offset by closing a corporate tax 
loophole regarding the deductible liquidating distributions or 
regulated investment companies and real estate investment trusts. The 
remaining revenue available from the offset would be used to reduce the 
airline ticket tax for the domestic segment serving a rural airport.
  Under current law, an 8 percent ad velorem tax is imposed on all 
domestic flights, plus a $2 flight segment tax. Beginning in fiscal 
year 1999, the ad velorem tax is reduced to 7.5 percent and the flight 
segment tax is increased to $2.25. In subsequent years, the ad velorem 
tax remains at 7.5 percent while the flight segment tax increases $0.25 
per year through 2003 at which point is capped at $3.00 per flight 
segment. Current law provides that the flight segment tax is not 
imposed on domestic flights to and from rural airports, which are 
defined as an airport with fewer than 100,000 passenger departures and 
is not located within 75 miles of another airport (that has fewer than 
100,000 passenger departures) or is receiving EAS subsidies. Under this 
legislation, the 7.5 percent ad velorem tax on domestic flights to 
rural airports would be reduced in proportion to the amount remaining 
from the revenue offset after the regional jet aircraft investment tax 
credit has been provided.
  It is targeted, it makes good sense, and it will stimulate investment 
in an activity that this country that very much needs more competition. 
The so-called free market is clogged--a kind of an airline cholesterol 
here that clogs up the arteries, and they say, ``This is the way we 
work, these are our hubs, these are out spokes, and you cannot mess 
with them.''
  My legislation simply says we would like to assist areas that no 
longer have jet service but could support it. We would like to 
encourage companies that decide they want to come in and serve there to 
be able to purchase the regional jets and be able to initiate that kind 
of service.
  My legislation has a second provision which reduces the airline 
ticket tax for certain qualified flights in rural America. This 
proposal also has a revenue offset so it would not be a net loser for 
the Federal budget.
  We are not in a situation in rural areas of this country where we can 
just sit back and say what is going to happen to us is going to happen 
to us and there is nothing we can do about it. There are some, I 
suppose, who sit around and wring their hands and gnash their teeth and 
fret and sweat and say, ``I really cannot alter things very much, this 
is the way it is.''
  The way it is not satisfactory to the people of my State. It is not 
satisfactory to have only one jet carrier serving our entire State. Our 
State's transportation services and airline service, especially jet 
airline service, is an essential transportation service. It ought not 
be held hostage by labor problems or other problems of one jet carrier. 
We must have competition. If all of those in this Chamber who mean what 
they say when they talk about competition will weigh in here and say, 
``Let's stand for competition, let's stand for the free market, let's 
try to help new starts, let's breed opportunities for broader based 
economic ownership and more competition in the airline industry,'' then 
I think we will have done something important and useful and good for 
States like mine and for many other rural States in this country.
  Mr. President, I ask unanimous consent that a copy of this bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 2627

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. TAX CREDIT FOR REGIONAL JET AIRCRAFT SERVING 
                   UNDERSERVED COMMUNITIES.

       (a) Allowance of Credit.--
       (1) In general.--Section 46 of the Internal Revenue Code of 
     1986 (relating to amount of

[[Page S12560]]

     credit) is amended by striking ``and'' at the end of 
     paragraph (2), by striking the period at the end of paragraph 
     (3) and inserting ``, and'', and by inserting after paragraph 
     (3) the following new paragraph:
       ``(4) in the case of an eligible small air carrier, the 
     underserved community jet access credit.''
       (2) Underserved community jet access credit.--Section 48 of 
     such Code (relating to the energy credit and the 
     reforestation credit) is amended by adding after subsection 
     (b) the following new subsection:
       ``(c) Underserved Community Jet Access Credit.--
       ``(1) In general.--For purposes of section 46, the 
     underserved community jet access credit of an eligible small 
     air carrier for any taxable year is an amount equal to 10 
     percent of the qualified investment in any qualified regional 
     jet aircraft.
       ``(2) Eligible small air carrier.--For purposes of this 
     subsection and section 46--
       ``(A) In general.--The term `eligible small air carrier' 
     means, with respect to any qualified regional jet aircraft, 
     an air carrier--
       ``(i) to which part 121 of title 14, Code of Federal 
     Regulations, applies, and
       ``(ii) which has less than 10,000,000,000 (10 billion) 
     revenue passenger miles for the calendar year preceding the 
     calendar year in which such aircraft is originally placed in 
     service.
       ``(B) Air carrier.--The term `air carrier' means any air 
     carrier holding a certificate of public convenience and 
     necessity issued by the Secretary of Transportation under 
     section 41102 of title 49, United States Code.
       ``(C) Start-up carriers.--If an air carrier has not been in 
     operation during the entire calendar year described in 
     subparagraph (A)(ii), the determination under such 
     subparagraph shall be made on the basis of a reasonable 
     estimate of revenue passenger miles for its first full 
     calendar year of operation.
       ``(D) Aggregation.--All air carriers which are treated as 1 
     employer under section 52 shall be treated as 1 person for 
     purposes of subparagraph (A)(ii).
       ``(3) Qualified regional jet aircraft.--For purposes of 
     this subsection, the term `qualified regional jet aircraft' 
     means a civil aircraft--
       ``(A) which is originally placed in service by the 
     taxpayer,
       ``(B) which is powered by jet propulsion and is designed to 
     have a maximum passenger seating capacity of not less than 30 
     passengers and not more than 100 passengers, and
       ``(C) at least 50 percent of the flight segments of which 
     during any 12-month period beginning on or after the date the 
     aircraft is originally placed in service are between a hub 
     airport (as defined in section 41731(a)(3) of title 49, 
     United States Code, and an underserved airport.
       ``(4) Underserved airport.--The term `underserved airport' 
     means, with respect to any qualified regional jet aircraft, 
     an airport which for the calendar year preceding the calendar 
     year in which such aircraft is originally placed in service 
     had less than 600,000 enplanements.
       ``(5) Qualified investment.--For purposes of paragraph (1), 
     the term `qualified investment' means, with respect to any 
     taxable year, the basis of any qualified regional jet 
     aircraft placed in service by the taxpayer during such 
     taxable year.
       ``(6) Qualified progress expenditures.--
       ``(A) Increase in qualified investment.--In the case of a 
     taxpayer who has made an election under subparagraph (E), the 
     amount of the qualified investment of such taxpayer for the 
     taxable year (determined under paragraph (5) without regard 
     to this subsection) shall be increased by an amount equal to 
     the aggregate of each qualified progress expenditure for the 
     taxable year with respect to progress expenditure property.
       ``(B) Progress expenditure property defined.--For purposes 
     of this paragraph, the term `progress expenditure property' 
     means any property which is being constructed for the 
     taxpayer and which it is reasonable to believe will qualify 
     as a qualified regional jet aircraft of the taxpayer when it 
     is placed in service.
       ``(C) Qualified progress expenditures defined.--For 
     purposes of this paragraph, the term `qualified progress 
     expenditures' means the amount paid during the taxable year 
     to another person for the construction of such property.
       ``(D) Only construction of aircraft to be taken into 
     account.--Construction shall be taken into account only if, 
     for purposes of this subpart, expenditures therefor are 
     properly chargeable to capital account with respect to the 
     qualified regional jet aircraft.
       ``(E) Election.--An election under this paragraph may be 
     made at such time and in such manner as the Secretary may by 
     regulations prescribe. Such an election shall apply to the 
     taxable year for which made and to all subsequent taxable 
     years. Such an election, once made, may not be revoked except 
     with the consent of the Secretary.
       ``(7) Coordination with other credits.--This subsection 
     shall not apply to any property with respect to which the 
     energy credit or the rehabilitation credit is allowed unless 
     the taxpayer elects to waive the application of such credits 
     to such property.
       ``(8) Special lease rules.--For purposes of section 
     50(d)(5), section 48(d) (as in effect on the day before the 
     date of the enactment of the Revenue Reconciliation Act of 
     1990) shall be applied for purposes of this section without 
     regard to paragraph (4)(B) thereof (relating to short-term 
     leases of property with class life of under 14 years).
       ``(9) Application.--This subsection shall apply to periods 
     after the date of the enactment of this subsection and before 
     January 1, 2009, under rules similar to the rules of section 
     48(m) (as in effect on the day before the date of the 
     enactment of the Revenue Reconciliation Act of 1990).''
       (3) Recapture.--Section 50(a) of such Code (relating to 
     recapture in the case of dispositions, etc.) is amended by 
     adding at the end the following new paragraph:
       ``(6) Special rules for aircraft credit.--
       ``(A) In general.--For purposes of determining whether a 
     qualified regional jet aircraft ceases to be investment 
     credit property, an airport which was an underserved airport 
     as of the date such aircraft was originally placed in service 
     shall continue to be treated as an underserved airport during 
     any period this subsection applies to the aircraft.
       ``(B) Property ceases to qualify for progress 
     expenditures.--Rules similar to the rules of paragraph (2) 
     shall apply in the case of qualified progress expenditures 
     for a qualified regional jet aircraft under section 48(c).''
       (4) Technical amendments.--
       (A) Subparagraph (C) of section 49(a)(1) of such Code is 
     amended by striking ``and'' at the end of clause (ii), by 
     striking the period at the end of clause (iii) and inserting 
     ``, and'', and by adding at the end the following new clause:
       ``(iv) the portion of the basis of any qualified regional 
     jet aircraft attributable to any qualified investment (as 
     defined by section 48(c)(5)).''
       (B) Paragraph (4) of section 50(a) of such Code is amended 
     by striking ``and (2)'' and inserting ``, (2), and (6)''.
       (C)(i) The section heading for section 48 of such Code is 
     amended to read as follows:

     ``SEC. 48. OTHER CREDITS.''

       (ii) The table of sections for subpart E of part IV of 
     subchapter A of chapter 1 of such Code is amended by striking 
     the item relating to section 48 and inserting the following 
     new item:

``Sec. 48. Other credits.''

       (5) Effective date.--The amendments made by this subsection 
     shall apply to periods after the date of the enactment of 
     this Act, under rules similar to the rules of section 48(m) 
     of the Internal Revenue Code of 1986 (as in effect on the day 
     before the date of the enactment of the Revenue 
     Reconciliation Act of 1990.
       (b) Reduced Passenger Tax Rate on Rural Domestic Flight 
     Segments.--Section 4261(e)(1)(C) of such Code (relating to 
     segments to and from rural airports) is amended to read as 
     follows:
       ``(C) Reduction in general tax rate.--
       ``(i) In general.--The tax imposed by subsection (a) shall 
     apply to any domestic segment beginning or ending at an 
     airport which is a rural airport for the calendar year in 
     which such segment begins or ends (as the case may be) at the 
     rate determined by the Secretary under clause (ii) for such 
     year in lieu of the rate otherwise applicable under 
     subsection (a).
       ``(ii) Determination of rate.--The rate determined by the 
     Secretary under this clause for each calendar year shall 
     equal the rate of tax otherwise applicable under subsection 
     (a) reduced by an amount which reflects the net amount of the 
     increase in revenues to the Treasury for such year resulting 
     from the amendments made by subsections (a) and (c) of 
     section ____ of the Wendell H. Ford National Air 
     Transportation System Improvement Act of 1998.
       ``(iii) Transportation involving multiple segments.--In the 
     case of transportation involving more than 1 domestic segment 
     at least 1 of which does not begin or end at a rural airport, 
     the rate applicable by reason of clause (i) shall be applied 
     by taking into account only an amount which bears the same 
     ratio to the amount paid for such transportation as the 
     number of specified miles in domestic segments which begin or 
     end at a rural airport bears to the total number of specified 
     miles in such transportation.''.
       (c) Treatment of Certain Deductible Liquidating 
     Distributions of Regulated Investment Companies and Real 
     Estate Investment Trusts.--
       (1) In general.--Section 332 of the Internal Revenue Code 
     of 1986 (relating to complete liquidations of subsidiaries) 
     is amended by adding at the end the following new subsection:
       ``(c) Deductible Liquidating Distributions of Regulated 
     Investment Companies and Real Estate Investment Trusts.--If a 
     corporation receives a distribution from a regulated 
     investment company or a real estate investment trust which is 
     considered under subsection (b) as being in complete 
     liquidation of such company or trust, then, notwithstanding 
     any other provision of this chapter, such corporation shall 
     recognize and treat as a dividend from such company or trust 
     an amount equal to the deduction for dividends paid allowable 
     to such company or trust by reason of such distribution.''.
       (2) Conforming amendments.--
       (A) The material preceding paragraph (1) of section 332(b) 
     of such Code is amended by striking ``subsection (a)'' and 
     inserting ``this section''.
       (B) Paragraph (1) of section 334(b) of such Code is amended 
     by striking ``section 332(a)'' and inserting ``section 332''.

[[Page S12561]]

       (3) Effective date.--The amendments made by this subsection 
     shall apply to distributions after May 21, 1998.
                                 ______