As National Taxpayers Union (NTU) has long reminded policymakers, a middle-class traveler is likely to pay a higher tax and fee burden on an airline ticket (currently over 20 percent) than he or she would face on a 1040 federal income tax return. For this troubling reason, NTU is paying close attention to the earnest discussions in Washington over how best to piece together legislation reauthorizing programs under the Federal Aviation Administration (FAA). Contemplating increases in the tax and fee load, without offsetting cuts in other types of aviation taxes, is counterproductive and unfair. Yet that is a direction some in Congress may try to take, complicating efforts of reformers.
One element in the aviation tax-policy debate is whether to increase the maximum federally authorized Passenger Facility Charge (PFC) that airports can levy for local improvement projects. Supporters of such a move out that the federal cap on the PFC – currently $4.50 per passenger enplanement or $18 total per itinerary – has not been increased since 2000. Therefore, they argue, the charge has lost much of its original value, and it might be appropriate to nearly double the PFC cap or remove it entirely.
It is quite true that economic factors have eroded the buying power of a PFC since 2000, when it was last increased to $4.50 maximum. Yet, despite the fact that $4.50 today is worth significantly less than $4.50 was in year 2000, FAA data shows that overall PFC collections have managed to climb 80.5 percent between 2000 and 2013. That’s almost twice as fast as the increase in the Consumer Price Index for All Urban Consumers, plus the rise in passenger enplanements at primary U.S. airports, over the same period (2013 is the most recent year for consistent data on all three factors).
Of course there are other ways to measure this trend, such as comparing the PFC’s value 15 years ago to a construction cost index. The problem with doing so is that flawed government policies, such as project-labor rules and antiquated building regulations, can help to drive up those indices even as materials get more expensive. Thus it is up to policymakers themselves to address some of the root causes behind higher construction costs in a pro-taxpayer manner.
Unfortunately, it is also true that since the year 2000, Americans have been hit with increases in the plethora of government-authorized levies on air travel. The most recent imposition was put into place less than a year ago. The so-called Ryan-Murray budget deal, which modified highly effective caps on most kinds of discretionary expenditures, more than doubled the passenger security fee. Why? The government needed a revenue-raising scheme to suspend the caps and stay within the Congressional Budget Office’s scoring window for deficit neutrality.
Whatever mix of taxes, fees, and charges Congress decides to permit on air travel, lawmakers have a special responsibility to ensure that the net bottom-line cost of government on an airline ticket and system users doesn’t grow worse. Indeed, that cost could actually shrink if upcoming legislation incorporates pro-taxpayer reforms such as:
* Embracing Rep. Bill Shuster’s (R-PA) recent call for restructuring air traffic control into a user-financed model, leaving the FAA with a regulatory oversight role and vesting the actual operation of the system in a new private entity. This approach has successfully delivered better service at more predictable costs in numerous countries.
* Supporting the Transparent Airfares Act. NTU has actively sought stand-alone passage of this legislation, which would repeal federal regulations on airfare reporting that hide the true costs of taxes from consumers. An FAA reauthorization package should contain this language, which in the last Congress cleared the House but has been stalled in the Senate. At the same time, Congress should instruct government regulators to employ sound economic cost-benefit analysis in their rulemaking procedures, which have proven to be terribly onerous for air carriers and other sectors of the industry.
* Hastening the expansion of private screening contracts at airports, which can often provide more efficient and effective security than the government-directed Transportation Security Administration.
* Encouraging further privatization of airports as well as reducing tax penalties on private funds that partner on investments in public entities. Tax-advantaged private activity bonds, a staple in many transportation projects, could provide airports with more capital if federal laws were revised to ensure that some of these transactions aren’t hit with Alternative Minimum Tax (AMT) liabilities. This change may be outside the scope of an FAA reauthorization package, but it only underscores the necessity to think more broadly about the impact of government policies on the aviation system.
* Re-examining low-priority programs. In their 2013 “Common Ground” Report, NTU teamed up with U.S. Public Interest Research Group to identify numerous bipartisan spending reduction opportunities throughout government. Among these was the Essential Air Service Program.
* Ensuring lighter tax loads on air travel. Congress could take several approaches toward streamlining the byzantine structure of taxes, fees, and charges that government heaps upon air travelers and airlines. One proposal to explore, unveiled last week, would: repeal five Airport and Airway taxes (including the ticket excise tax), raise the PFC and repurpose the segment tax (indexing both for inflation), and create a new fee for a privatized air traffic control entity. There are, however, other taxes passed through to customers that could be targeted for elimination. Regardless of what they choose, or the pros and cons underlying the PFC’s role in airport finance, lawmakers would have to design any such package with the greatest of care. That entails providing net relief in the total tax and fee load on air travelers and the industry. The legislation must also phase in changes concurrently, avoiding the “raise taxes now, cut some later” ploy that Washington often seems to concoct.
Congress has tremendous opportunities to dramatically improve our commercial aviation system’s capacity, efficiency, and affordability, but they must take steps such as these. Here’s hoping Members of Congress will work toward honest, comprehensive reform, and steer clear of short-term “fixes” that leave customers and the businesses serving them worse off than before.