By Kathryn B. Creedy
The ground-swell opposition for HR-4156 — The Transparent Air Fares Act — has resulted in many articles illustrating a distinct lack of understanding of a complex issue.
Consumer advocates oppose the bill, allowing airlines to return to past practices showing the base fare without taxes and fees. They say such taxes are required and should be baked into the base fare just as they are for a gallon of gas.
The airline industry supports HR-4156 to highlight that 20.5% of a ticket is taxes and fees. Indeed, a 20% tax is high for any consumer product and exceeds sin taxes designed to reduce consumption such as alcohol and tobacco.
These are two separate but related issues that have a greater impact on the economy than consumer advocates realize.
The first issue is whether or not aviation taxes and fees should be baked into the price of a ticket and consumer advocate’s opposition fails because it sets air fares apart from any other consumer product and does not address the fact that aviation is not the only consumer sector with opaque pricing.
If consumer advocates are so exercised about taxes and fees why are they singling out airlines? Why are they not proposing legislation to include hotel and car rental taxes and fees as well as airfares? What about other transportation modes that are not required to include transportation taxes and fees in base prices? Consumers understand that the price they are quoted for a car, a washing machine, or even a hamburger does not include taxes, so why should airline tickets? Wouldn’t consumer advocate energy be better spent on supporting legislation that encompasses these sectors and others that have opaque pricing strategies? It is silly to focus only on airlines.
As important as transparency in consumer pricing is, the rule requiring airlines to include government taxes in the base price hides the fact that consumers are not getting what they pay for when they launder their money through Washington. Indeed, airlines are right in highlighting this issue because of its impact on consumers and the economy at large.
These taxes go into the Aviation Trust Fund raising $19 billion annually to support government aviation functions — air traffic control, the Federal Aviation Administration, TSA, and the like. Similarly, gasoline taxes go to the Highway Trust Fund raising about $300 billion annually to support road and other infrastructure spending. Meanwhile, infrastructure spending continues to decline.
Under investing in infrastructure, wrote Economist Laura D’Andrea Tyson in 2011, has left us with “congested roads, freight bottlenecks, airport delays and overcrowded or nonexistent public transit operations.” She said infrastructure spending in the U.S. was only 2.4% of GDP compared to 5% in Europe and 9% in China. According to a landmark study — America’s New Transportation Agenda, published in 2010 by the University of Virginia — the annual shortfall in infrastructure spending ranges between $134 billion and $262 billion through 2035. This is bad for business and has led to an infrastructure crisis that left us a legacy of aviation gridlock and deadly bridge collapses.
Failure to update the air traffic control system is contributing to climate change. Since 1978, aircraft manufacturers have done what they could to reduce their carbon footprint improving fuel efficiency by 120%, eliminating 3.4 billion metric tons of carbon dioxide even as passenger numbers grew exponentially. But, their quest for carbon neutrality by 2050 will never happen without system modernization, which promises to reduce aviation greenhouse gas emissions between 10% and 15% by allowing more direct routings, reducing delays and decreasing fuel burn. We have been waiting for modernization for many decades and it remains woefully behind schedule.
While infrastructure spending has been declining, user fees and taxes for that spending have been rising illustrated by this simple statistic: taxes on a typical $300 round trip domestic ticket rose 48.5% from 7% of the ticket in 1990 to more than 20% today. In fact, the recently increased TSA fee is not designed to cover TSA costs but to go into the general fund to pay down the deficit. Should airline passengers really be the government’s unfettered ATM machine?
While consumer advocates and journalists alike love to rail against airline ancillary fees, they fail to recognize that the government invented the business model decades ago when it could no longer raise taxes. This gave birth to user fees across nearly every government department, siphoning billions of dollars from users such things as air traffic control.
While some say users should pay for government-provided services, we now have decades of experience with shortfalls on infrastructure spending despite the billions of dollars raised for that purpose. For passengers, the most recent disruption was the failure of the system to accommodate demand this winter when serial blizzards forced 1.3 million delays and cancellations, disrupting nine million passengers and costing the economy $6 billion, according to widespread press reports.
It should be noted that the industry’s effort to stem the impact of taxes and fees is not altruistic. The industry wants them lowered and have proven that they will raise fares if they are. When federal authority to collect taxes and fees expired momentarily in 2011, airlines raised fares pocketing the income that would have gone to the feds.
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