By Hugo Martin
The cost of flying might be going up, but this time it’s not the airlines raising prices. The Obama administration has proposed raising the taxes on air travel by about $14 per flight, a move airlines strongly oppose.
Higher taxes are needed to help reduce the deficit, pay for improvements at the nation’s airports, and add thousands of new immigration and customs officers to reduce wait times to process foreign visitors, the administration says.
Airlines say higher taxes will backfire and hurt the economy.
“Our fragile economy and the millions of middle-class Americans who rely on air travel and shipping every day simply cannot afford tax increases that will drive up the cost of flying or limit service options to small communities across the country,” said Nicholas E. Calio, president and chief executive of Airlines for America, the trade group for the nation’s airlines.
Congress ignored similar hikes proposed by the Obama administration last year. Since then, the airlines themselves raised fares 3%, from an average of $364 in 2011 to $375 last year, according to the U.S. Bureau of Transportation Statistics.
But airline industry representatives say there is a difference between a fare hike and a tax increase.
Airlines use fare increases to reinvest in services to passengers — such as buying new planes, said Katie Connell, a spokeswoman for Airlines for America [the US airline lobby group].
“A tax or fee imposed by a third party that keeps the money does nothing for our customers,” she said, adding that most airlines earn an average profit of 37 cents per passenger.
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Duty on US jet fuel
(there is no duty on jet fuel in the UK or in Europe)
Wikipedia:
As of 2007, jet fuel (called “kerosene for aviation” by the IRS) is taxed at 21.9¢/gal unless it is used for commercial aviation (airlines such as American Airlines and US Airways and small chartered commercial jets). Because such commercial operations are subject to the federal transportation tax, they are subject to a reduced fuel tax of 4.4¢/gal.[9]
These taxes mainly fund airport and Air Traffic Control operations by the Federal Aviation Administration (FAA), of which commercial aviation is the biggest user. http://en.wikipedia.org/wiki/Fuel_taxes_in_the_United_States
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Tax Proposals Open a Debate on Airline Industry’s Troubles
By SUSAN STELLIN (New York Times)
May 6, 2013
A $300 domestic airline ticket now includes about $60 in taxes — or 20% of the total fare — which pays for things like air traffic controllers, airport improvements, customs and immigration inspections and checkpoint screening.
President Obama, in his 2014 budget request, has proposed increases in many of those taxes, a move that the airline industry opposes, arguing that passengers are already overtaxed. The recipients of these taxes counter that many of these fees have not increased in years, contributing to outdated systems, flight delays and long lines.
This is not the first time similar tax increases have been proposed — and usually rejected. But given the current fiscal climate, and the recent sequestration-imposed furloughs of air traffic controllers, some aviation experts say it is time for a broader overhaul of air travel financing and oversight.
The debate largely centers on two questions lawmakers and industry representatives will have to wrestle with in the coming months: who should pay for the essential functions of the aviation system — travelers or all taxpayers? And could tax increases be avoided if the money collected were spent more efficiently?
“Instead of $61 on a typical $300 domestic ticket, that could go to $75,” said John Heimlich, chief economist at Airlines for America, an industry trade association. “We’re not getting the most out of the money we’re providing already.”
The largest share of those taxes — $3.90 per flight segment, plus a 7.5% ticket tax — goes to the Federal Aviation Administration, mostly for air traffic control. The agency has been criticized recently for failing to trim 5 percent of its budget (as required by the sequestration) without causing widespread flight delays.
In response to those delays, Congress passed legislation allowing the F.A.A. more flexibility in how to make the cuts, but the agency’s spending has come under scrutiny, particularly in light of the airlines’ flight cutbacks.
According to Airlines for America, the number of commercial flights fell 15 percent from 2001 to 2012, while the F.A.A.’s revenue from commercial aviation grew 37 percent. The airline business has changed greatly during that time, especially as fuel prices have skyrocketed.
“The tax structure we have today for aviation is a legacy of the regulated and even the pre-jet era,” Mr. Heimlich said. Noting the belt-tightening that carriers have undertaken, he contended that government agencies like the F.A.A. could benefit from a similar overhaul.
“I see these agencies as part of our supply chain that have not gone through the same type of restructuring,” he said.
Mr. Obama’s budget proposal would also increase the taxes air travelers pay for customs inspections, to $7.50 from $5.50 for an international flight. And the tax used to pay for immigration services would increase to $9 from $7. Yet the travel industry has complained that waiting times to enter the United States have increased, sometimes stretching to hours at busy airports. It is not clear whether all the new revenue would be used to hire additional inspectors at those airports.
Another proposed tax increase would raise the security fee to $5 per one-way trip from $2.50 per flight segment, doubling the tax paid by passengers on nonstop flights. That money goes to the Transportation Security Administration, which has been criticized by Congress, the Government Accountability Office and passengers over wasteful spending.
Most of the additional money raised by the higher security fee would be used to reduce the deficit. The remainder would shift more of the burden of paying for security screening to air travelers instead of general taxpayers.
Right now, those travelers cover less than half of the T.S.A.’s budget through the security fee, leaving taxpayers to make up the difference — a situation some researchers say they believe leads to a lack of accountability.
“If this were all paid for by the aviation sector, there would be a strong incentive for the aviation sector to call attention to poorly justified programs and get Congress to rein them in,” said Robert Poole, director of transportation policy at the Reason Foundation, a libertarian research firm.
While he does not support taxing air travelers to reduce the deficit, he disagrees with the airline industry’s characterization of existing travel taxes as “sin taxes,” arguing that they are not like taxes on cigarettes or alcohol.
“That is so bogus because every one of these taxes is an aviation excise tax — it’s all paying for infrastructure,” Mr. Poole said. “If these taxes didn’t exist, the airlines would be paying for infrastructure through more use of direct fees.”
That user fee model is more common in other countries for services like air traffic control, and given the latest turmoil at the F.A.A., there is growing support for a similar approach in the United States.
Stephen Van Beek, a member of the F.A.A. Management Advisory Council, a group appointed by the transportation secretary, said there was unanimous consent among its members that changes needed to be made to the agency’s oversight and financing model.
Mr. Van Beek cited the two dozen extensions of the F.A.A.’s authority that Congress approved before passing a reauthorization bill last year, Congressional influence over which air traffic towers the agency can close and other instances of politics taking precedence over sound business decisions, saying it was time for a new approach.
“I don’t know how many more examples people need in order to determine we need to reform the system,” he said. “Congress today basically acts as a board of directors for the F.A.A.”
Mr. Van Beek, an executive director at the transportation consulting firm LeighFisher, also pointed out that the airline industry’s shift toward charging fees for things like checked bags and priority seating had affected the agency’s budget, since those fees were not subject to the 7.5 percent tax.
“When you reduce overall ticket prices and you raise ancillary fees, you’re actually providing less money for air traffic controllers,” he said.
As those fees proliferate, that loss of revenue is substantial. According to Airlines for America, revenue from baggage and change fees added up to an average of $23 a passenger in the first nine months of 2012 — jumping from $2.50 a passenger in 2000.
If the airlines had instead simply raised fares by $20, the F.A.A. would have received almost $1 billion in additional revenue last year from ticket taxes, far more than the agency recently had to cut because of the sequestration. But there is not a consensus that additional revenue is necessary.
“If you let the F.A.A. run their operation as a commercial business,” Mr. Van Beek said, “we think they would have enough money.”
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