ATA President and CEO Nicholas E. Calio, comparing taxes on airline travel to sin taxes: “The industry already pays more than its fair share of taxes – more than alcohol and tobacco, products that are taxed at levels to discourage their use. Today on a typical $300 round-trip ticket, passengers already pay $63 in taxes and fees.”
The U.S. airline industry pays 17 different federal taxes totaling nearly $17 billion. Or, put another way, the U.S. airline industry pays more in federal taxes than the combined market capitalizations of American Airlines, Delta Air Lines, United Airlines and US Airways.
Note the point Calio makes: heavy taxes are usually levied to discourage their use. Are the White House and Congress looking to discourage air travel? I would hope not, but let’s again revisit the law of unintended consequences.
In the Concise Encyclopedia of Economics, Rob Norton says, “The law of unintended consequences, often cited but rarely defined, is that actions of people—and especially of government—always have effects that are unanticipated or unintended. Economists and other social scientists have heeded its power for centuries; for just as long, politicians and popular opinion have largely ignored it.”
The government is apparently considering imposing $1.5 to $2 billion in new taxes on the airline industry. That would be bad enough for a healthy industry, but could be potentially disastrous for one that is barely emerging from one of the worst decades in its history, during which it lost $55 billion and bankruptcies, failures and service cuts were common place.
The White House and Congress won’t believe this, but their “easy” fix comes with a simple, unintended consequence: MORE TAXES = LESS FLYING.
Oh, I know the argument is going to be if airlines can charge for baggage and ticketing changes and other ancillary fees then a few more dollars in taxes will have little to no effect on the industry. Problem is, those ancillary fees have kept carriers flying, covering the difference in the base fare charged and the total cost of the trip and helped staunch the gush of red ink caused by volatile fuel prices. (Usually caused by unregulated fuel speculation, but that’s an entirely different topic.)
Let’s not forget about fuel. Ancillary fees and fuel surcharges have helped airlines offset – but not completely make up for – the high cost of Jet A. Tacking on dollars to the base ticket price in taxes probably means carriers won’t be able to curb fuel price effects by passing some of the cost on to the consumer. We’re back to unintended consequences as those additional taxes could cost the airline revenue and, if airlines aren’t careful, keep passengers from flying.
Worse, new airline taxes won’t put a dent in the national deficit. Rather than do the job they were sent to Washington to do and make difficult spending cuts, the politicians would rather nickel and dime their way to some sort of feel good fix while inflicting damage on an industry that helps propel the economy each hour of every day.
It will be interesting to see if service cuts similar to what Delta announced last week don’t increase if new taxes are imposed. Certainly some profitable flights will become unprofitable. Some breakeven flights will become unprofitable. Reading the lips of today’s CEO’s, unprofitable flying must be culled from the system. How will that sit with 535 representatives that call Congress home for at least two years? If members of Congress are frustrated by service cutbacks as a result of high oil prices and weak economies, then what might they tell their constituents when more tax on the industry results in even more lost service.
Communities are being disenfranchised from the air transportation grid. The highway will increasingly become the first access point. Service cutbacks triggered by new taxes won’t only force more communities to the road, but they’ll also strangle their economic opportunities. Yes, another unintended consequence.
The White House and Congress should be thinking about the airline industry as a facilitator of economic activity. To dismiss it as a make work project or generator of marginal tax revenue only undermines the United States global leadership position. As I have said before, it is less about Altoona and more about Auckland. If you make it so people can’t get here from there, they simply won’t bother.
There’s another consequence the White House should be very sensitive to. The airline industry still offers high-paying jobs. Killing it with a thousand paper cuts – a little tax here, a little tax there – and, all of a sudden, carriers are cutting even more capacity. More employees are furloughed. More carriers head to bankruptcy and those jobs disappear. Completely opposite of what the administration has been promising.
The increased taxes under consideration are not industry killers by themselves. They just pile on top of taxes and fees that really do impact the overall demand of an industry – an industry vital to the velocity of economy every day.
Congress and the White House should really think about what their intent is… and the consequences it might have. Picking the pocket of an industry that has little to give, costing not just businesses, but communities and employees isn’t smart government. In fact, it might be a sin.