Not sure how many of you have been paying attention to the details of the proposed aviation tax changes (details on pp 22-23) coming out of Washington, but they’re downright awful. I fully understand the need to raise revenues right now, but this is just a strange way to do it. Let’s take a look at the details and then shake our heads in confusion.
There are two pieces to the tax plan, so let’s look at each one separately. (I tend to think the second one is worse.)
Increase the Security Fee
When you travel today, you pay $2.50 every time you get on an airplane up to $5 each way solely to fund the TSA. This tax was invented after September 11, 2001 and in fact, was named the September 11 Security Fee. In the proposed tax change, it’s now known as the Aviation Passenger Security Fee instead but the point is the same. We’re supposed to be funding security activities.
This fee currently only covers 43 percent of the cost to operate the TSA, so the idea is theoretically to close that gap. But that’s not what’s actually going to happen.
The proposal is to hike the fee to $5 each way regardless of how many stops you make. (If you fly nonstop, it doubles from $2.50, but otherwise it stays the same.) But it doesn’t stop there. It’s only $5 now, but it will go up $.50 each year until it hits $7.50 each way in 2017. After that, the Secretary of Homeland Security has free reign to jack the fee up from there, but it cannot be lowered. That’s right, these numbers are minimum floors.
Let’s say you support this. We should be paying for more robust security and you think that whatever it costs is a worthwhile investment. I can understand that argument, but this will make your blood boil.
This fee is expected to bring in $24.9 billion over 10 years. Of that, $15 billion would be “deposited into the General Fund for debt reduction.” That’s right. More than half this revenue won’t help security at all. It will just go to balance the budget. If I’m paying an “Aviation Passenger Security Fee,” it better be going to making me safer. This isn’t going to do that.
A $100 Departure Tax
The second part of the equation is to raise more money by slapping on a new $100 tax every time an airplane takes off. This is supposed to help pay for the use of air traffic control services. The goal is to try to sell this to you by suggesting that it will finally get those fat cats with corporate jets to pay their fair share. That may be true, and you probably won’t hear many complaints about that from the general public.
But it also puts a huge burden on the flights that struggle the most right now – those to small cities. Think about it. A $100 tax on a 747 is nothing. If you have 400 people on an airplane, that’s a quarter per person. Pretty easy to absorb, especially on longer flights when the fares are likely to be relatively high anyway.
What about a 50-seat regional jet? Now it’s an extra $2 per ticket (assuming that plane is full). That might not sound like a lot, but on a $100 ticket, that’s a 2 percent increase and that can push a flight from black ink to red.
What about a 19 seat turboprop? Now it’s over $5 a ticket. If that airplane is half full, it’s $10 a ticket. Those communities that are currently struggling to save their commercial service are going to be dealt a severe blow in their efforts. Small communities have enough trouble keeping service as it is. This just makes it worse.
Sure, there are exceptions for recreational aircraft and air ambulances, but there is still a glaring problem here. This is a bad way to raise money because it hurts the piece of commercial aviation that’s struggling the most to survive right now.
Not smart. Not smart at all. I don’t want to get into the politics of this (though I’m sure you guys undoubtedly will in the comments). Regardless of whether you think there should be revenue increases or not, this isn’t a good way to do it.
[Beech 1900 image via Flickr user jordanvuong/CC 2.0]
Not even going to get started on this (since I’m worn out from being started on this all last week) but thank you for clearly laying out the consequences. Just a note though, I believe this will have a large effect on the big boys too. For example, this airline I know of called Southwest who is flying 137 pax (hopefully) on many many shorthaul flights with slim slim margins is going to really get hurt by this more so than Delta or United who are able to adjust certain routes with bigger equipment and less frequency.
But at the same time, the legacies all have regional carriers that operate flights with only 20-80 passengers, while Southwest doesn’t.
Then again, we would probably see the marginally profitable routes disappear anyways.
You can take action on this issue – visit http://www.stopairtaxnow.com/ to find out how. Why is aviation always such an easy target?
because aviation spend costs money! Government spends untold amounts of money subsidizing air travel costs. From capital expenditures for airports and transportation projects to connect airports to cities, to security costs not to mention the MEGA costs which are coming as we move to next generation air traffic control. Are you really saying that $100 is too much? I agree with Brett that perhaps on small regional services they should come up with a better plan, but there needs to be additional revenue. It’s always easy to disagree with a tax, but it’s hard to disagree that there isn’t a need for additional revenue, so someone please come up with a better idea. doing nothing isn’t one.
Oh I forgot that airlines and airline passengers pay nothing in taxes, and that they have been enjoying tax-free travel since Wilbur and Orville. Thanks for setting me straight.
I agree that there is need for additional revenue, and support additional taxes to go get it. Where I disagree is targeting an industry that is over-taxed already, and by the way, isn’t making any money to begin with. But, it is convenient to target airlines, because it is fun to hate the airlines, and neither side of the aisle is going to get upset like they would if you started taxing the ultra-rich, or other corporations who have much more money to spend on lobbyists.
But, that’s not even the point. If you had read the column that you commented on, you would have seen that most of the funds don’t go to paying for aviation programs – they go to paying for the rest of the budget. I’m not saying that’s a surprise, because not all of the funds collected from ticket taxes today go to paying for aviation infrastructure, they are diverted elsewhere. What I am saying is that if the aviation industry is going to be burdened with paying down the defecit, then the other industries and individuals should as well – it should not be targeted to the airline industry because it is easier politically.
Brett, quote from the page you linked to yesterday:
“In its September proposal, the administration said a large commercial jet pays between $1,300 and $2,000 in taxes for a flight from Los Angeles to San Francisco, while a corporate jet flying the same route and using the same Federal Aviation Administration air traffic services pays taxes of about $60.”
I want to know where they came up with the $60 figure for GA. GA pays fuel excise taxes just like everybody else, and they’re burning a few hundred gallons on that flight. And $2000 in taxes for ATC services on a 1 hour flight? Holy heck.
I expect that the ticket tax, segment tax, etc. make up a large portion of the taxes paid by the commercial flight.
How much is the fuel excise tax and how much fuel is burned on a short LA-SF flight?
Maybe if the feds enacted a ticket tax assessed on the value of the GA flight as a charter flight, then that would even things out.
I can see that the security fee should be a set amount per one-way trip if the main security cost is the screening since you are normally only screened once, and not at connecting points. How about we split the difference and set it at $3.50 or $4 per trip.
Increasing it to $7.50 and giving the TSA, the most unaccountable, non-transparent agency on earth, the freedom to keep raising the fee, is ridiculous. The intelligence functions and policy-setting functions of the TSA should be absorded into an agency like the FBI, and the screening function should be provided by private contractors who are subject to independent testing. There is no evidence whatsoever that having the screening performed by government employees has improved efficifacy at all.
As to the flight tax, that’s tougher. I support higher taxes on GA when they use the same services and airspace as commercial flights. And to some degree a charge that helps incentivize larger aircraft does make sense. But it contradicts the intent of maintaining service to small communities and programs like EAS. Maybe the charge can be waived for flights where one end of the trip is at an airport with fewer than (? 50?) flights per day.
The issue with restricting to fewer than fifty flights per day is are you restricting that based on Part 121 (a.k.a. Airlines) flights or in another way? I can see this distorting the market in weird ways as people try to arbitrage the system.
Rarely is so much attention paid to not wanting to pay for something. The citizens of the US are the LEAST taxed people in the G20. Here in Canada, we moan about tax, but we pay it. You know what, our largest airlines, Air Canada, Westjet, Jazz, Air Transat .. all are financially stable. The public still fly in droves and we pay 50% of our ticket costs in taxes. The system works up here. Those who use it pay for it.
Yes, the Canadian public still flies in droves from Bellingham, North Dakota, Detroit, Buffalo, Plattsburgh, and Vermont :)
But I understand where you’re coming from. That system logistically will work in the US but the US public has a very different view of taxes and WILL NOT PAY 50% of ticket costs for tax. Which means in the US we should be collecting the money upfront, so when you fly it looks really cheap.
Air Canada is far from financially stable, and has had several crises over the last couple years. But as Sanjeev says, there are a ton of Canadians crossing the border to avoid hefty taxes. Allegiant makes a great living serving those people. It’s a small market in Canada, but it’s also smaller than it should be because of the taxation, I presume.
There’s not an industry that feels its not overtaxed. I’ll leave it at that, except to write that, on balance, I’m not a fan of “corporate” or “business” taxes.
Why? I feel they’re deceptive.
One way or another, business taxes are passed on to the consumer. Therefore, we as individuals ultimately pay them. It might be far more honest (and less expensive?) to tax individuals directly, but the rates you’d have to impose would be politically unpalatable. On the other hand, we’re already paying these taxes.
In the end, nothing is free.
1. Aviation security benefits not only the traveling public, but also the non-traveling public — they don’t get planes crashing on top of them, and they receive some indirect benefits from the economic activity spurred by air travel. So it stands to reason that aviation security should be paid for in part by travelers, and in part by the general public. As is the case today.
2. If aviation security is underfunded, there are two ways to fix it: raise more revenue, or cut costs. I believe most readers here will agree that TSA is grossly inefficient, so there are plenty of opportunities to cut costs by reducing or eliminating those TSA activities that contribute least to security.
3. TSA has grown to be a fairly large operation. Removing some of its functions will have a macroeconomic effect — probably small but noticeable. Unfortunately nobody knows what this effect will be: many government jobs would be lost, and it is unknown whether there would be a corresponding gain in private sector jobs. Employment is a very important concern these days, and security is among the sectors where the public finds government jobs to be the most palatable, so expect the government to hold on to as many security jobs as it can, useful or not.
I think politicians should have 5% of their salary taken away and used to pay off debt for every dumb idea they think of. Yes, I know they will be on food stamps in a matter of months but WTF?
wow Bill that was eloquent. Everyone loves to dismiss ideas without coming up with a solution.
Adam, you must be a politician or be related to one to post a stupid comment like that
They should start by taxing private/corporate jets since they take up air space and burn fuel and polute the air just to carry on or two rich people who think they are to good to fly like everyone else.
Tax major league sports teams that have their own jets or charter jets to travel around to games. The team owners seem to be millionaires/billionaires so they can affort it without passing the cost to the paying fans.
Maybe it’s time for TSA to have a bake sale if they need money to pay their bills. They can fight the girl scouts for that prime location in front of the groocery store…..lol
I take it they have wifi Occupy Wall Street?
I take it they have wifi at Occupy Wall Street?
@Dr.K I take it you don’t know much about the topic at hand. Please take your political nonsense elsewhere as that’s not how we do it here on Cranky.
Also, you couldn’t even take a moment to realize that SF Eastbay is nowhere close to Wall Street before posting your irrelevant comment (twice).
Getting to David’s topic, I wonder how they tax corporate jets in other countries. That may give us an indication on how to change the tax code.
Departure tax is really not fair
How about a landing tax? Then you don’t have to pay it unless you actually land.
Absolutely great article!
What is aviation security? What should it be? Have we really resolved that?
Regardless, aviation security is not something you can decide to use or not use, or to use to a greater or lesser extent. And, can anyone really say no aviation infrastructure need exist, and thus they need not pay for aviation security?
Aviation security is something like national defense. We all benefit from it, whether or not you fly or how you fly. So, why can’t we just accept it as a government cost, something for every citizen to pay from general revenues and forget about trying to show it as this dollar for that and that dollar for this…!
Of course we want to know how much this all costs. But, worrying about who paid what and how much, to me, is a waste of time.
Yes I agree @JayB.
Taxes were invented for a reason, because there are somethings that are better collected centralized than charged at the point of consumption. For example, you don’t stop at a toll booth every half mile on the highway. Kids in public schools don’t swipe in farecards as they walk in every morning.
In the same way, you shouldn’t pay anything more than the current 7.5% tax. Let the government tax you before hand and fund the TSA with no fees. For example, on my previous British Airways ticket, the UK tax portion was one Passenger Duty (albeit high). The US taxes were in total lower but much more confusing when listed in 9 different categories including Customs, APHIS, Sept 11, Airport Fee, etc…
I have to disagree with the analysis on the second fee. I know it will hurt small communities, but so what? Small planes take up just as many air traffic controller services as big planes, so why should they not pay? The government already provides lots of subsidies to small communities, like Essential Air Service, Small Community Grants, and so on. Why do we keep taxing big cities and then using the money to subsidize small communities? The people who live there chose to live there, and if air service is that important to them, they can move. They can’t just sit back and whine about how they don’t have air service and demand special treatment from the government at the expense of taxpayers.
Well said. This would also necessitate developing alternative transportation, like long distance and overnight trains and buses. But most people in these Lower 48 EAS places have probably never set foot in a train in their lives and buses carry a social stigma (although Megabus is slowly changing that).
Not to be political, but taxing big cities and subsidizing small cities is similar way our electoral system works. Why do you think every person in America doesn’t have an equal vote? How can someone in Wyoming have over 3 times the voting power as someone in New Jersey? Heck, you could even extend this to affirmative action. I don’t like it, but this is the way America operates.
So…impose a tax that is designed to make smaller communites pay more? Now your talkin’! Make Main St pay!!!!
It’s not making them pay more, it’s making them pay the same as everyone else.
I’m just happy to see something (sort-of) tied to inflation; somehow that obvious step gets forgotten sometimes. The federal gas tax, for example, isn’t tied to inflation, so that tax has been continually cut since the last time it was changed (a couple decades ago now?).
A flat rate tax on flights may encourage larger planes to be used which would clear up congestion at some airports like LGA. The tax should fully fund the agency though, and no more. It will reduce the deficit indirectly by the gov not paying for the TSA out of general revenue.
Airports dont anywhere near pay for themselves in the states, more user fees to cover the costs isn’t necessarily a bad thing.
What I’m curious with the Security Tax is where the remainder of the 57% of the TSA’s budget comes from? If its the general fund putting the new taxes into the general fund for deficit reduction is just political legerdemain..
Your departure tax argument is completely wrong. As Jim stated, the size of the airplane has nothing to do with the amount of ATC services provided. Your argument implies that each PAX has contact with ATC.
Come on…Beer and Hookers are included, they’re just not going to advertise or admit to that part. From what I’ve heard, I think those two are mandatory in D.C.
Call me a commie socialist, but I am OK with some of my airfare going to pay down the deficit. As a millennial making barely above the poverty level, I still manage to make flying an achievable luxury. I also see the massive debt my generation is inheriting. I’d rather my airfare taxes go to pay down the debt than for pseudo-‘security’. I know that it could have a rough impact on the aviation industry, but our whole country is due for a belt-tightening and air travel is no exception. I do not really expect anyone to agree, but I am still willing to pay a little more in airfare and I guarantee that I make less than 95% of the readers.
This tax has nothing to do with security at all. It’s about hitting the cash cow called the airlines for all it’s worth. No other business is taxed as high as aviation. Why? Because the government can, so it does. The government doesn’t care about having profitable airlines; they care about having a national transportation system. Until the taxes grow to a point that forces airlines to limit service due to reduced demand, the government will continue to sacrifice the airlines’ profitability for its own desires, many of which have nothing to do with aviation. It’s a travesty, plain and simple.