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Policy Issues

​​Tax Policy & Trade

AAR POLICY POSITION: Freight railroads support: 

  • Making the short line tax credit permanent tax policy.
  • Reducing the corporate tax rate to enhance U.S. economic development and promote job growth.
  • U.S. policymakers narrowly targeting assistance for U.S. workers affected by trade agreements rather than unraveling policies that would lessen U.S. competitiveness, productivity and participation in international trade.

CORPORATE Tax reform

Why This MattersA simpler, fairer tax code with a more competitive rate means a stronger economy and more freight demand, which leads to more investments and a stronger network to serve our customers.

The U.S. imposes a statutory corporate tax rate of 35% — the highest in the industrialized world. This non-competitive tax rate correlates with low growth, less productivity gains than in previous eras, underinvestment in American enterprise and more companies doing business elsewhere. It also deters innovation, leaving rail customers and the overall U.S. economy less competitive in the global market. Economists across the political spectrum consider the corporate income tax to be among the most harmful for long-term economic growth.

Currently, class I railroads pay on average a 33.5% effective federal tax rate, which climbs to 37% when state taxes are included. A more competitive business tax rate means a more competitive freight rail sector, which leads to more investments and a stronger network to serve customers and the economy.

What the Experts are Saying

  • "The corporate tax rate is, in effect, a tax on corporate investment; a high corporate tax rate discourages investment, whereas a low corporate tax rate encourages investment..." (Tax Foundation, a Non-partisan Research Organization)
  • "…The broader impact for the entire rail network and its customers of a simpler and fairer tax code that includes a more competitive business rate will be a stronger economy. Supporting this is common sense." (Patrick O'Malley, V.P. of Union Pacific Taxes & General Tax Counsel)
  • "We know that our high corporate tax rate is slowing economic growth in this country. We know that it is depressing wages. We know that it is driving businesses to invest outside, not inside, the United States." (RATE Coalition)

Short Line Tax Credit

America’s more than 550 short line and regional railroads provide the essential link between thousands of customer facilities and the national rail system. These railroads must maintain and upgrade their infrastructure to handle the new generation of heavier rail cars used by their customers. Otherwise, freight that would normally move by rail would be forced onto rural highways that are not designed for heavy traffic volumes, resulting in enormous road maintenance burdens on local and state governments. In 2005, Congress enacted the Section 45G tax credit to reduce the federal tax burden and help these crucial local transportation providers. The credit will expire at the end of 2016 and should be made a permanent tax policy or extended beyond 2016 in the short-run. 

Freight Railroads & Trade

By linking businesses to each other here and abroad, freight railroads have played a crucial role in America's economic development for more than 185 years. American life is driven by employment and consumption, which is made possible by domestic and international trade. This trade, which happens across Northern America, depends on manufacturing and creating goods and services, transporting them to market and then selling them via various retail means — in person or through ecommerce.

The chain is integrated, which largely requires a free flow of goods. Undo any part of it — including rail — and policymakers risk undoing today's economic framework and greatly affecting American life as it is experienced today.

AAR Trade Report

The AAR conducted an assessment of the role that trade plays for freight railroads. Prior analysis conducted in 2016 shows spending by Class I railroads, the seven largest U.S. freight railroads, created nearly $274 billion in economic activity, generated about $33 billion in state and federal tax revenues and supported almost 1.5 million jobs nationally in 2014 alone.

The new trade data show that international trade that American companies conduct supports a huge swath of freight rail operations in terms of personnel, equipment and revenue. Helping American workers displaced by trade agreements is a worthy undertaking, but policymakers must be careful not to enact measures that have the effect of rolling back U.S. participation in trade. Doing so would undermine one of the nation's most essential industries and an essential partner to so many other U.S. industries.

Key Analysis Takeaways

  • At least 42% of rail carloads and intermodal units are directly associated with international trade.
  • More than 35% of annual rail revenue is directly associated with international trade.
  • Approximately 50,000 rail jobs, worth over $5.5 billion in annual wages and benefits, depend directly on international trade.

Download the Report