The cost of flying is going to rise. You can feel it in the air. No, the airlines aren’t raising fares again this time. It’s Congress that wants to wring another $4 billion from taxpayers’ pockets.
For months, the House and Senate have been hammering out legislation that would place an additional tax burden on air travelers, supplementing the $30 billion it already collects, technically to improve air safety, the aging air traffic control system and airports. Critics contend the money is used to offset the budget deficit.
At the moment, Congress seems to view all people who fly as affluent. And the travel and tourism industry appears to be the cash cow du jour from which to extract new taxes.
Here’s the deal. Both Democrats and Republicans want to provide tax breaks in the 1998 budget by cutting the capital gains rate and offering education tax credits. But when Congress cuts taxes, it has to find new revenue sources to make up the shortfall and thereby balance the budget.
The House and Senate are at odds on how to tax air tickets. Democrats and Republicans, of course, are at odds on how to apply the tax. Even Republican leadership is split on the issue. And, of course, the airlines have their differences–big time. The Big Seven carriers–United, American, Delta, Northwest, US Airways, TWA and Continental–favor the House bill. The discount carriers, led by Southwest, favor the Senate bill.
Instead of extending the across-the-board 10 percent excise tax on all domestic airline tickets, which expires Sept. 30, the House Ways and Means Committee and the Senate Finance Committee have drafted opposing bills to supplement the $30 billion that the current 10 percent tax generates over a five-year period.
The House version would lower the domestic ticket tax to 7.5 percent from 10 percent but impose a $2-a-person fee on airport-to-airport segments of a flight. Not to ignore international travelers, the House bill would replace the $6 departure fee with a $15.50 tax on both departures and arrivals–a total of $31 for a round-trip flight.
The Senate bill would renew the 10 percent ticket tax but reduce it to 7.5 percent on flights to and from rural airports–those that serve fewer than 100,000 passengers a year. International “departure” fees would be raised to $8 and apply to both departing and arriving passengers.
What Congress ultimately passes and sends on to President Clinton as part of the budget bill is not clear at this writing. The airlines’ positions, however, are clear.
A few weeks ago, several hundred employees of major airlines, subsidized by their carriers, descended on Capitol Hill to protest proposed ticket tax increases.
The Big Seven and Southwest Airlines have flagged the public with full-page newspaper ads. “Please be prepared to bring your seat forward, your tray table into its locked and upright position and dig very deeply into your pockets,” warned a United Airlines ad in the New York Times. “The House proposal . . . is fairer and less threatening to the economy,” the ad stated, urging readers to call their senators and representatives. Southwest, which launched the ad war, charged the Big Seven with “skyway robbery” in pushing for the Senate bill.
When push comes to shove and posturing is set aside, the Big Seven favor the House bill because it puts more tax burden on the discount carriers like Southwest. The Big Seven contend the current tax system favors the small discount guys. Planes like Southwest’s that zip in and out of airports are heavy users of the air traffic control system, the Big Seven say, and there should be a relationship between the use of the system and the amount of tax that carrier’s passengers pay.
“We think the Senate version is a brilliant piece of legislation,” offered Southwest spokesman Ed Stewart. “On the other hand, the House version really threatens our low fares. It threatens to put people back in the situation you had before Southwest, where fewer people could fly because fares were so high.”
As Stewart explained, the House version “shifts the cost burden from the Big Seven to everybody else.” Because Southwest is a short-haul carrier and has few long, nonstop segments, its passengers would be socked with a $2 tax for each segment of the flight, adding up to $6 or $8, while a passenger aboard a Big Seven nonstop would pay only a $2 head tax.
Weighing in against all the proposed taxes on air travelers is the Washington-based Travel Industry Association, a trade group.
“International travelers to the U.S. (as well as U.S. citizens) are already paying a $6 international departure tax, a $6 immigration user fee, a $6.50 customs user fee, a $1.45 agriculture fee plus as much as $12 per ticket in airport passenger facility charges,” reminded William S. Norman, TIA president and CEO, in a letter to Rep. Bill Archer (R-Texas), chairman of the House Ways and Means Committee, and Sen. William Roth (R-Del.), vice chair of the Senate Joint Committee on Taxation. “This does not include the 10 percent ticket tax they would pay on domestic flights they would take within the U.S. How much more are these travelers supposed to pay just for the privilege of visiting the U.S.?”
Rick Webster, TIA’s director of legal affairs, described the proposed ticket taxes as “a revenue grab.” He said there’s no justification for the taxes because they provide no benefits to air travelers.
Tom Parson, editor of Best Fares magazine, said the government would be smart to let the present ticket tax structure stand. He noted that the Big Seven have raised air fares 38 times since May 1992. “The government gets an incremental (tax) windfall by not messing with the system because we know the airlines are going to try to raise fares another six or seven times in the next 12 months,” he said.
For decades, no one has challenged the need for the 10 percent airline ticket tax–not the airlines, not consumer groups and not passengers. So why legislate a complicated formula and additional taxes that could have an impact on the $467 billion travel industry? Maybe Congress should apply the KISS solution–Keep It Simple, Stupid.
