Excise Taxes vs. User Fees

Government Regulation, Safety/Security

I know, I know. The subject does not exactly spark visions of enjoyment, but trust me, this is interesting, because it impacts how much you’ll pay when you fly.

It’s that time again where the FAA comes up for reauthorization from Congress. As usual, they’re slow in getting started with this thing. If it doesn’t happen by the end of September, passengers won’t pay taxes on their airline tickets. Hooray!

Now, don’t get too excited. This happened last time as well, but the prices didn’t change. The airlines just pocketed the difference until the reauthorization was pushed through. This time, there are a million things up for discussion, but the most important, of course, is how will the FAA be funded.

Currently, the FAA gets most of its funding through excise taxes. This includes a 7.5% tax on tickets plus a segment fee. There are also fees for fuel and cargo, and a few others as well. The FAA needs a ton of money to run the agency and to pay for the next generation Air Traffic Control system, so this is a pretty crucial decision.

Most airlines share the same stance here. They don’t like the excise fee system, because they say it doesn’t charge based on costs to the system. That’s a fair point. The ATA (Air Transport Association) has their PR campaign in full swing at SmartSkies.org. I’ll let the unbelievably obnoxious Edna tell the story from their point of view.

The argument, as you can see, is that a commercial jet pays a lot more than a corporate jet, but it’s not proportional to how much they each use the ATC system. Logic says corporate jets should pay more than they do now.

Under this plan, airline passengers should pay less than they do now, but they’ll still have to pay under the “the more you use, the more you pay” philosophy. The latest proposal suggests having a passenger tax that would go up with the number of departures (connection vs nonstop) and the length of the flights. Flights under 250 miles would be tax free. That obnoxiously leaves the DC-New York-Boston runs without tax, but the rest of the plan makes sense.

What about the other side?

They like to use the slippery slope argument. It’s one thing to charge corporate jets of the rich and famous, but let’s say that this trickles down to apply to all aircraft using the ATC system equally. Right now, the proposal would only apply to jet and turboprop aircraft, so the everyday pilot wouldn’t be affected. But opponents like to say that it’s inevitable that it will end up being charged to all aircraft.

If that happens, a private pilot who uses ATC on his little Cessna 172 would have to pay a ton of money. Of course, AOPA, the Aircraft Owners and Pilots Association, has its list of points in favor of keeping the current system. They say that if you charge too much for ATC, private pilots will fly without ATC services and that is more dangerous. The alternative is that they won’t fly at all and that’s not good either. They also say that it’s really easy and relatively cheap to collect the excise taxes so we shouldn’t create something more complicated that will have higher administrative costs.

In the end, there are two sides of the argument and both have valid points. Since I use commercial aviation and not corporate or general aviation, I should want the user fee since that should lower costs for airline passengers. And since the current proposal doesn’t tax piston engine aircraft, my pilot friends wouldn’t be affected either. Right now, I’m learning toward user fees, but I’m not completely sold on it. Write your comments below and let me know what you think.

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8 comments on “Excise Taxes vs. User Fees

  1. User fees are definitely the way to go that we can privatize the whole system and get the government out of providing services that benefit public safety. Heck, let’s put toll booths on every freeway onramp and offramp so that users of the nation’s highway system pay for exactly what they use. This seems much more FAIR. Oh wait, the government funds the highway system through a fuel tax. That seems to work well. By coincidence, the government also has a fuel tax on avgas and jet fuel, which pilots pay without complaining (too much). That already funds much of the ATC system. I don’t see the difference. Either put in user fees in our highways in the sky and highways on the ground or continue the current funding system for both. The only reason this is a debate is that the airline’s lobbyists are very well funded and most of the public doesn’t care what happens to pilots of small planes. But if we started charging “user fees” on the highways on the ground, you bet the public wouldn’t be for it, even if you did promise to reduce fuel taxes.

  2. As much as I hate to agree with Mike Boyd on anything, one of his commentaries this week pointed out that all of the back and forth over who pays for the system seems to beg the question of WHEN the system will be upgraded.

    Getting one side or the other to pay more to support the infrastructure is useless if there’s no performance guarantee on the part of the agency to actually do anything about it…

    E

  3. Just as I don’t think I should have to pay for mass transit in a city where I wouldn’t use it, I don’t think anyone should get a free ride in the sky. All aircraft operators, commercial or private should be required to pay a fee based on the amount of time their aircraft is in the sky using the system. To make air lines pay for the same system that corporate or private aircraft operators are using for free is wrong. We as consumers pick that tab up whether we like it or not right now when we fly.

  4. Interestingly enough, the Air Transport Association summarizes this blog piece as “the Cranky Flier takes a look at both sides of the FAA funding debate — and comes down on the side of commercial air passengers.” This is a bit different than “I’m learning toward user fees, but I’m not completely sold on it.”

    To Anonymous: Fuel taxes bring in about $800 million. The excise tax brings in about $4.6 billion and the segment tax about $1.8 billion. Passenger facility charges paid directly to airports amount for another $2.2 billion. In summary, the fuel taxes are fairly marginal and clearly do not “fund much of the ATC system.” On top of that, close to 75% of the fuel taxes are paid by the airline industry.

    JK (neutral researcher)

  5. Each “blip” on the radar represents more than aluminum. We are moving people, not airplanes. The ATC sytem’s cost of handling an aircraft should be based on the cost required to move the people on the airplane, not an airplane’s presence. If we applied the airline’s logic to our roads, cars would pay the same tax/fees as trucks or buses. It ignores the fact that trucks and buses are normally used for commercial purposes and create the majority of the costs required to build, maintain and repair the roads.

    The airlines are deceptively trying to have the public believe that they as passengers are being “taxed” excessively. I believe the airline passenger is being treated quite fairly. The airlines pay little fuel tax to fund the FAA/ATC budget. Instead they collect the per-passenger taxes and fees and transfer them directly to the government. If the airlines wish to get rid of these passenger-paid taxes and fees, they should be paying a fuel tax like the rest of aviation.

    The fuel tax should be retained and adjusted to reflect the big picture of how seat/mile efficient each type (piston, small turboprop or jet, airliner) aircraft is. Using this method, an airliner is inherently more seat/mile fuel efficient.

    User fees are almost the most unfair system I can think of. It’s like bringing my family to a football game, getting in for a “package price” and then finding out that a bus from a group got in for the same price I paid.

    Airlines have a track record of innovative but less than effective business strategies. Every industry deregulated in 1978 has figured out how to lower costs (and profit), except the airline industry. There is very little reason to trust that user fees will not be an area the airlines turn into another place for a market-share-driven price war. Many have paid for these “strategies” before. The real cost has been borne by the businesses and people affected.

    So far they include:

    1. Travel agencies

    2. Taxpayers

    3. Aircraft manufacturers

    4. Aircraft Lessors

    5. Multitude unsecured creditors

    6. Their employees

    7. Their customers

    8. Airports

    9. Anyone doing business at an airport

    10. General Aviation?

    The airlines have taken on each of these groups one at a time. If they’d come to all of them at once, they’d have heard a distinct “NO WAY”. Now it’s general aviation’s turn and the airlines seem to have recruited the FAA for help. Charging a $25 fee per flight may sound like a good idea, but it is a divide and conquer approach for general aviation and will not change anything in the airline industry. It’s a typical airline strategy. It is not fair or reasonable.

    It may be time for Congress to minimally re-regulate the airline industry. First, they should require airlines to operate at no less than cost, and not below (within their entire domestic route structure). In other words, they may operate chosen routes at a loss, but not the sum of their domestic route structure. An inefficient airline will not be able to be indifferent about their costs, and efficient airlines will have reason to continue their efforts.

    Second, I believe that the DOT should require ticket pricing be unbundled. One of the problems with “low-low” fares is that sometimes the taxes and fees are near the actual fare paid. Airlines should advertise “total cost” and make fare, tax, and fee breakdowns visible and obvious. This should encourage those responsible within a given area (fare, tax, fees) to also be more efficient. For example, airports typically lease to airlines for space and services, that takes the form of a per passenger charge. In markets with multiple airports, the effect of those charges be displayed will be to encourage cost-effective decisions at that airport.

    Please know that I am FOR low fares. I like to go visit family. I need to go meet customers. I know this is ludicrous, but, the logical end of what we’re seeing the airlines do is that eventually we’ll be able to go anywhere, anytime for free because they’ve found enough people, businesses or fellow aviators to push the costs onto.

  6. Let’s see… the companies who continually go to the federal government for bailouts, who abuse the bankruptcy laws to dodge their pension obligations (sticking it to the federal taxpayer AGAIN), who trap passengers on aircraft sitting on the tarmac for four, six, eight hours at a stretch, who pocketed the tax monies the past TWO times they expired before Congressional action restored them (sticking their own passengers for a little additional revenue), and who treat their passengers like so much cattle are all of a sudden concerned with how much their passengers pay in taxes for ATC services.

    Yeah… right. Anyone who believes this and who thinks the airlines are going to give them a price break the NEXT time those taxes are lapsed or reduced has GOT to be having some serious problems with reality.

    By the way, the vast majority of ATC infrastructure is geared toward… are you ready for this…? those airports used as hubs by the airlines. Subtract the amount of ATC infrastructure used to run O’Hare, Dallas-Ft. Worth, Atlanta Hartsfield, Los Angeles International, JFK, LaGuardia, and Denver International and you’ll see that those corporate “big wigs” are paying far more than their fair share flying into much less congested fields.

  7. The airlines’ ploy for user fees is just another attempt to pass on even more of their business costs to their passengers. Think about it – if the airlines truly had their customers’ best interests in mind, would Congress be forced to require, by statute, that they supply water, toilets, and ventilated air when flights are delayed? Plus check recent history: when Congress allowed the excise taxes to expire in 1996, did ticket prices fall commiserate with the decrease in taxes? The answer is no!

    The airlines have hung their hat on the FAA’s recent cost allocation study which claims that commercial airlines contribute more money to the AATF than what it costs the FAA to provide air traffic control services to those flights. Oddly enough, the FAA refuses to release the raw data used to compile this study to any independent organization for validation. Given the FAA’s ability to manage major acquisitions and stay anywhere near a budget, this is probably a good idea. Without the ability to “rebaseline” Congress and the American people would be able to see how poorly mismanaged its resources are. So instead of going to Congress and admitting the truth, they’ve come up with a new plan, which may or may not be based on accurate information, to raise unlimited piles of money to squander.

    This is a dangerous path – especially for commercial airline customers. As the FAA finds it difficult to justify constantly increasing its user fees based on the cost to use the ATC system, they’ll start to advocate for fees based on the benefits of NextGen. The primary benefits of ATC modernization will be realized by the commercial airlines. More direct routes mean less fuel consumption and theoretically, less delays. The responsibility for traffic separation will be born by the pilot. How does this benefit GA? Individual pilots will be forced to equip with technology that will enhance their ability to see and avoid, so they’ll have even fewer reasons to talk to air traffic. Now who’s imposing the bulk of the costs on the system?

    A user pays, user says system is the airlines’ last great hope for establishing the climate it needs to make more money by providing less service. If the airlines can dictate how the ATC system is modernized, without that pesky Congress asking questions, it can squeeze GA out and subject everyone who must fly to its pisspoor “customer” service.

    The solution to the delays and congestion plaguing the system won’t be found by analyzing how the FAA is funded. And the FAA is too wimpy to ask its “customers” – AKA the airlines – why they continue to overschedule flights at about 15 key airports in the system. Let’s hope Congress takes a closer look and starts to ask why there is capacy at Ontario, when LAX is a mess, why United or AA can’t relieve the ground congestion at ORD by scheduling flights at Gary, Indiana, etc. We have capacity – it’s just not where the airlines want it!

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