Short-term fix, long-term damage

By Eben Peck
Eben PeckAir travel is the cornerstone of the U.S. travel and tourism industry, and "selling air" remains a significant contributor to the bottom lines of travel agents across the country.

Yet, as Congress and the administration grapple with ways to reduce the federal budget deficit, proposals are on the table to increase the already-significant tax burden on air transportation in ways that risk hurting both the U.S. travel industry and the consumers who rely on it.

The aviation industry is critical to the nation's economic well-being. According to the Department of Transportation, in 2009 civil aviation supported over 10 million jobs, contributed $1.3 trillion in total economic activity and accounted for 5.2% of total U.S. gross domestic product. Air carriers operating in U.S. airspace transported 793 million passengers, or more than 2 million trips per day. Twelve percent of all leisure travel and 18% of all business travel is conducted by air, and air travel generates indirect economic activity, as well, totaling nearly $250 billion in 2008.

Beyond its impact on the U.S. economy generally, aviation is important for travel agents and other travel distributors. In 2011, travel agents, both traditional and online, were responsible for the sale of some $82.1 billion worth of air travel, or 55% of all domestic U.S. airline tickets.

Considering the central role it has come to play in American society, air travel is taxed to a surprising degree. For each flight, the 7.5% Passenger Ticket Tax, the $3.80 Flight Segment Tax, International Arrival and Departure Taxes, Passenger Facility Charges, the 9/11 security fee and others can make up more than $60 of a $300 roundtrip ticket.

Federal taxes on air travel far exceed so-called "sin taxes" on items such as liquor, firearms and tobacco.

Recipe for round trip air fareAnd this tax burden has been growing, from $3.7 billion in 1993 to approximately $17 billion today, according to Airlines for America. In 2010, U.S. airlines and their passengers contributed $3.4 billion in taxes and fees to the Department of Homeland Security, including $2 billion in taxes and fees to the Transportation Security Administration (TSA), a 50% increase from the amount collected in 2002.

Searching for ways to address chronic budget problems, the Obama administration has recently proposed to add to this tax burden. Specifically, the administration proposes to create a $100 fee on all flights, in addition to the existing taxes mentioned above. The revenues generated by the fee, estimated at $11 billion over 10 years, would be deposited into the Airport and Airway Trust Fund, thereby reducing the Federal Aviation Administration's reliance on U.S. "general fund" monies. The administration also proposes to increase the per-ticket 9/11 security fee to $7.50, and allow the secretary of Homeland Security to increase the fee through regulation. This would raise almost $25 billion over 10 years, $15 billion of which would be directed to deficit reduction rather than the TSA (contrary to the current "user fee" setup whereby users of a service -- security screening in this case -- pay for that service). These two proposals, if enacted, would surely add to the cost of air travel and could lead to job losses and service cuts: a 2.3% reduction in capacity and 9,700 jobs eliminated compared with 2011, according to a study commissioned by Airlines for America.

Economics 101 tells us that the more something is taxed, the less people consume it, and this is backed up by research. A 2011 consumer survey commissioned by the U.S. Travel Association found that a 1% increase in aviation taxes would make 16% of travelers "much less likely" to book a ticket, rising to 29% with a 5% increase and to 53% with a 10% increase. This is why ASTA and its members are concerned about these ideas.

We don't mean to imply that the endeavors supported by our existing aviation tax system -- airport infrastructure, aviation security and air traffic control, to name a few -- are unworthy of support. Our point is simply that while placing new taxes on air travel might help to close the budget gap in the short term or provide more support to worthy endeavors, such actions will no doubt have unintended, long-term negative consequences as consumers already faced with tight budgets cut back on air travel or eliminate it altogether.

The results could be catastrophic for an industry already struggling to recover from the recent recession, which saw millions of Americans curtail their travel.

It won't be just the airlines that feel the resulting pain, but travel agencies, 98% of whom are small businesses, who sell air, hotels and resorts, cruise lines and car rental companies, to name a few. The resulting loss of jobs would only serve to compound our current economic troubles, rather than alleviate them.

Rather than adding to the tax burden on air travel, the government should spread it more broadly to all of the beneficiaries of this economic engine.

Congress will soon be faced with the gargantuan task of sorting out the so-called "fiscal cliff": a combination of automatic spending cuts, tax increases and a debt ceiling nearing its limit. We do not envy them and are under no illusion as to the scale of the challenges they face.

We simply hope, to paraphrase the Hippocratic oath, that as they examine ways to put the budget on the right track they "first do no harm" to an industry upon which so many consumers and businesses, small and large, rely.

Eben Peck is ASTA's vice president for government affairs. Contact him at epeck@asta.org. 
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