This article appeared on Inside Sources on January 13, 2016.
Early in the new year, Congress is expected to unveil the Federal Aviation Administration reauthorization bill. The legislation is attracting interest in anticipation that big-ticket items like air traffic control reform will be included, but other high-impact issues should not be ignored. As an important first step toward comprehensive aviation tax reform, Congress should take the opportunity finally to repeal the Anti-Head Tax Act.
The crux of the issue is how airport infrastructure improvements are funded. Passengers currently pay a variety of federal taxes, including a domestic passenger ticket tax, a domestic flight segment tax, and international arrival and departure taxes, among many others. These taxes are collected by the IRS and put into the Airport and Airway Trust Fund. Some of that in turn goes to the Airport Improvement Program and funds federal grants to individual airports.
In other words, it’s a convoluted and inefficient system that primarily benefits bureaucrats instead of airports and travelers.
All of these federal taxes add up to a pretty penny, and much of it goes to unproductive activities like funding the invasive and ineffective Transportation Security Agency. All in all, a typical flyer purchasing a $300 ticket pays an eye-popping $63 in taxes and levies.
It doesn’t have to be this way. Reducing federal involvement in airport funding and allowing for greater local control would both better distribute funds for needed infrastructure improvements as well as likely save travelers money.
The Anti-Head Tax Act prevents local jurisdictions and airport authorities from levying their own taxes or fees. That might sound good to today’s overtaxed travelers, but it actually contributes to the problem by making airports reliant on federal tax collection and distribution. Sending tax dollars to Washington where some can be siphoned off for other purposes, and then distributed back to airports based upon political instead of economic factors, forces travelers to pay more for less benefit.
Passage of the Anti-Head Tax Act was a classic example of corporate cronyism. After Delta lost an attempted challenge over an airport passenger fee at the Supreme Court, Congress stepped in on its behalf and usurped state taxing powers in 1973.
By 1990 Congress began to realize they left airports without the means to improve their crumbling facilities and created the Passenger Facility Charge (PFC). Unlike the taxes collected by the federal government, the PFC is a user fee that goes directly to the collecting airport and must be used for infrastructure improvement. Right now PFCs are capped at a maximum of $4.50. It hasn’t been raised since 2000, so inflation has eroded its value and the quality of our nation’s airports reflect the need for reform.
User fees like the PFC are preferable to taxes because they are tied to a specific consumer benefit. Airports that see the most traffic, in other words, get the most dollars. There’s no opportunity for a power committee chair to ensure his district’s airport gets more than its level of traffic requires. Travelers thus get more benefits, while bureaucrats and politicians get fewer.
Raising the PFC cap, or better yet removing it entirely and repealing the Anti-Head Tax Act, would reduce bureaucratic bloat and the need for so many federal aviation taxes. Airports and local governments would gladly trade their reliance on federal grants and all the inefficiencies implied therein if Congress would let them manage their own affairs and let the market work.
