The Air Transport Association of America has warned that if the US Congress passes two new "punitive" passenger security and airline departure taxes, nearly 10,000 airline industry jobs could be cut within one year, while some 181,000 jobs could be lost across the US economy related to reductions in aircraft manufacturing, airports and supporting businesses.
Citing figures from management consultancy Oliver Wyman, ATA chief executive Nicholas Calio complains of taxes he estimates will amount to $3.5 billion annually: "The job-killing equation is simple - add taxes and lose jobs. Tripling the passenger security fee and creating a new $100 departure tax will have a devastating effect on the US economy and our customers, who already pay more in taxes for air travel than they do for alcohol, tobacco and firearms. The proposed new taxes will impact fares and reduce service, which equates to a one-way ticket to the unemployment line for thousands of Americans."
According to Calio, who reckons the new taxes will rake in about $3.5 billion yearly and would be levied to pay off the country's budget deficit: "The US government continues to use the airline industry as a cash cow, rather than seeing airlines as a growth enabler and understanding the strategic nature of aviation and what it takes to support one of our country's most critical industries."
Moreover, he adds, "Federal taxes and fees in the United States constitute $61, or 20%, of the cost of a typical $300 domestic round-trip ticket, higher than taxes paid for alcohol, tobacco or guns. The overall federal aviation tax burden in the United States has tripled since 1972.
"We are saddled with tax and regulatory mandates and restrictions that are unheard of for other industries."
Whether or not Calio's claim that aviation's tax and regulatory burden is really "unheard of" in other industries would actually stand up to fine-toothed scrutiny (surely taxes on tobacco are in excess of a fifth the purchase price?), he raises a good point - and one which has much resonance in an America preparing for an election season which will focus heavily on debt, tax and regulation. So, a few observations:
First, Calio and the ATA are right to say that excessive taxes on air travel would lead people to travel less, which would hit airlines. But while reasonably unrestricted facility to travel certainly boosts the economy, it is also true that the cost of providing the infrastructure that enables safe air travel falls largely on federal, state and local governments. Somebody has to pay for infrastructure, and at the moment much of America's problem is that too much paying is being done via government debt (about 40 cents of the dollar). NextGen air traffic control springs to mind as just one example of an infrastructure project that is failing because, at root, nobody is willing to pay for it - however great the prospective benefits.
The same is true of another infrastructure that Calio would surely agree is, like aviation, a "growth enabler": roads and bridges. All across America these are in poor repair, so it's quite probably time for, say, the city of Los Angeles and its basically insolvent state of California to start re-thinking the freeway concept, which is of course not free at all. Put up toll booths and you'd have a revolution? Maybe, but the alternative is falling down bridges or skyrocketing debt. No free lunch, as the saying goes.
Second, perhaps guns and booze are undertaxed. These two evils do much more harm than air travel, and if they really are less-taxed than air tickets are probably not paying their way. It is a reasonable principle that, in order to prevent gross distortions of people's behaviour, avoid waste and help market forces to channel investment to activities with the greatest net productivity, any activity should pay for what economists call its externalities. That is, prices need to reflect their costs to society and the environment: illness, injury, pollution, noise, loss of natural habitat, etc.
One conclusion is that, maybe, air travel - like road travel, guns, booze and deathweed - isn't taxed too much. Maybe it's taxed too little.
But consider another approach to the problem of taxes. Ask if any specific tax is too high or too low and the response is predictable; those who pay the tax say it's too high, while those who don't pay say it's entirely reasonable. Such is the essence of calls for a total overhaul of America's labyrinthine tax system, so riddled with loopholes and exemptions that billionaire Warren Buffet is able to pay, he claims, a lower percentage of his income than does his secretary.
Indeed, calls for a ground-up tax system rethink are so urgent that no respectable politician is likely to contest the 2012 elections without a plan to simplify the system dramatically, to widen the tax base in the interest of fairness and of increasing revenue.
So, rather than calling for special treatment of aviation - which is no more or less a critical link in the US economy than any number of other industries - perhaps Calio and the ATA should be calling for a tax system reset. How about, say, a national value-added tax combined with widespread taxes or fees to cover the cost of carbon output, noise, land use, runway construction, bridge building, security checks, etc - in exchange for an end to corporate income tax and reduced personal income tax?
That is, how about a tax system that in discouraging bad things - like energy use, pollution, consumption of resources, noise, etc - effectively encourages companies and individuals to be more efficient, and more environmentally- and socially-friendly, in the very American pursuit of "happiness", which would be taxed little or not at all?
It's just an idea, of course. But if the American economy is going to be the dynamic force that makes running an airline a profitable line of business, the country needs to end its structural reliance on deficit spending. Actually fixing the tax system - rather than fiddling about at the special interest margins - is the best, maybe only, way forward.
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