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AAR POLICY POSITION:
Freight railroads support:
Why This Matters: A 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
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.
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.
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
Download the Report