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U.S. Travel: FAA Bill Should Cut Taxes on Airfares

June 4, 2015 Destination North America No Comments Email Email

The $2.1 trillion U.S. travel industry on Tuesday presented to Congress its plan to fix the country’s struggling air travel infrastructure and promote a healthy, well-functioning passenger aviation system as part of a forthcoming bill to reauthorize the Federal Aviation Administration.

The centerpiece of the group’s plan: a tax cut designed to offset a needed adjustment to the Passenger Facility Charge (PFC), a local user fee that finances airport projects.

The net effect on the average federal ticket taxes and fees would be a reduction of between $9.50 and $25.50, based on a base average round-trip airfare of $340, according to U.S. Travel’s calculations.

In its totality, the platform intends a move toward a set of national aviation policies that is pro-competition, pro-growth and pro-traveler.

Specifically, the plan calls for:

  • the elimination of five passenger aviation taxes
    • the Domestic Passenger Ticket Tax
    • the tax on international arrivals and departures
    • the Domestic Commercial Fuel Tax
    • the tax on mileage rewards
    • the tax on flights between the continental U.S. and Alaska or Hawaii
  • providing local airports with the option to adjust their PFC from $4.50 to $8.50, and permanently adjusting the cap for inflation
  • altering funding for air traffic control to a user fee-based model
  • a requirement that large airports not accept federal Airport Improvement Program (AIP) entitlements

The proposed tax changes produce another key pro-consumer effect: eliminating airlines’ incentive to collect inordinate amounts of revenue through ancillary fees, such as for bags and ticket changes. A 2009 ruling by the IRS held that those fees are not subject to taxation, unleashing a major move toward fees by airlines that has been roundly criticized by travelers. Eliminating the Domestic Passenger Ticket Tax would remove the airlines’ incentive to shelter mass amounts of revenue in fees.

According to U.S. Travel Association research, the funding change for air traffic control and the AIP give-back for larger airports adequately compensate for any revenue reduction through the tax cut and protects funding for other critical FAA programs.

Providing airports with the option to adjust the PFC, meanwhile, will create funding flexibility for much-needed improvements to air travel infrastructure—a cause U.S. Travel has long championed. One of the many benefits of such a change is providing funds for airports to expand capacity by adding terminal space, which would allow new competitors into markets that are currently dominated by one or a few airlines. The potential effects for prices and service could be tremendous.

“FAA reauthorization presents an amazing opportunity to address a host of issues in our air travel system, and we should not squander it by only addressing a couple of the needs of our air travel system,” said U.S. Travel Association President and CEO Roger Dow. “The FAA bill should represent a comprehensive approach, and the policies it advances should be pro-competition, pro-growth and pro-traveler—I don’t think there’s a single individual or group out there who would say they disagree with that.

“The issue of infrastructure financing is particularly contentious. We continue to believe that the PFC, as a pure user fee, is the ideal means to address our severe infrastructure challenges. But finding the math to be able to include an airfare tax cut is a critical new piece, and has been expressly designed to address the concerns of some who have attacked the PFC approach.”

Dow continued: “We are supremely confident that on this platform, we will be able to build strong support for modernizing our infrastructure financing model, fostering a competitive aviation marketplace that benefits travelers, and finally giving this country the air transportation system that it needs and deserves.”

The U.S. Travel Association publicly embraced an adjustment to the PFC cap earlier this year after conducting voluminous research identifying air travel infrastructure deficiencies as a drastic and growing problem not just for travelers, but for the entire U.S. economy. Thanksgiving-like passenger congestion already afflicts most of the largest U.S. airports on at least a weekly basis. Delays, cancellations and other flying headaches are causing Americans to take fewer trips than they otherwise would, costing the U.S. economy $35.7 billion in 2013 alone.

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