Policy Documents

Research & Commentary: Airline Passenger Tax

Charlie Vidal –
February 24, 2011

Congress is considering an increase in the airline passenger facility tax from $4.50 to $7.00 per takeoff and landing. In total this would be a massive $2 billion tax increase on consumers.

The tax hike, which is being championed by airports and opposed by airlines, would seriously burden passengers and the airline industry. In addition, increasing the costs of travel would hurt businesses, especially the small businesses whose growth must drive the economic recovery.

The main proponents of this tax increase are the airports, most of which are managed and run by local governments. This fee is the main form of remuneration for airports, and it is used mainly to fund new construction. Airports argue the tax must be raised to keep up with rising construction costs. Advocates for airlines and consumers note that while the tax has remained constant, airfares have gone down, which means the tax rate has increased as a share of the cost of travel.

Lawmakers should look for avenues to decrease spending instead of imposing higher taxes. One way to increase efficiency and decrease government funding is to privatize airports. European nations have done this, and states such as Illinois and Indiana have done so with other transportation infrastructure.

The following documents offer additional information on airline taxes.

Research & Commentary: How to Privatize Airports ... and Why
http://www.budgetandtax-news.org/article/22912
Ralph Conner (who served as local legislation manager for The Heartland Institute until his death in March 2010) lays out a road map for how to privatize airports and points out some of the successes Europe has had in using privatization to keep costs down while improving service.

The Taxation of Air Transportation
http://www.budgetandtax-news.org/article/29353
Kenneth Button, professor of public policy at the Center for Transportation Policy, Operations, and Logistics at George Mason University, compares the taxation of air transportation to what is imposed on other modes. He concludes, “the current aviation tax structure is causing measurable harm to the national economy.”

A Guide to Airline-Ticket Taxes and Fees
http://www.usatoday.com/travel/flights/2007-04-16-air-travel-taxes_N.htm
USA Today provides an overview of the fees and taxes added to the price of a plane ticket. The taxes on airline tickets are so high and complicated that it takes an entire article to explain them.

Research & Commentary: The Damaging Effects of Tourism Taxes
http://www.budgetandtax-news.org/article/25756
John Nothdurft, director of government relations for The Heartland Institute, notes, “Tourism taxes have become an increasingly trendy pick for elected officials hoping to raise additional revenue to cover increases in government spending. But hiking already-high taxes on car rentals, hotels, airline flights, and other tourism necessities brings on a slew of problems.”

The Airline Ticket Tax Project
http://web.mit.edu/TicketTax/
The Massachusetts Institute of Technology Global Airline Industry Program finds airline ticket taxes include a form of bracket creep: As airfare prices go down while taxes (fees) remain constant, the effective tax rate increases.

Fly the Frugal Skies
http://www.budgetandtax-news.org/article/16529
Matt Welch of Reason magazine talks about some of the benefits European travelers have reaped from the privatization of airports.

ATA CEOs Letter to Senate Leadership Opposing PFC Increase in FAA Reauthorization
http://www.airlines.org/PublicPolicy/ATALetters/Pages/ATACEOsLettertoSenateLeadershipOpposingPFCIncreaseinFAAReauthorization.aspx
The Air Transport Association argues against the proposed airline passenger tax hike, saying it would hurt both consumers and the tourism industry. The organization notes the tax would benefit airports that are already highly profitable and have received billions of dollars in stimulus funds.

NBTA Expresses Concern Over Passenger Facility Charge Increase in Aviation Bill
http://www2.nbta.org/usa/pressreleases/Pages/mb072210.aspx
The National Business Traveler’s Association argues against the tax increases, noting businesses and consumers will be substantially harmed by this additional multibillion-dollar burden during difficult economic times.

 

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other tax topics, visit The Heartland Institute’s Web site at http://www.heartland.org and Budget & Tax News at http://www.budgetandtax-news.org.

If you have any questions about this issue or The Heartland Institute, you may contact Government Relations Director John Nothdurft at jnothdurft@heartland.org 312/377-4000.