Opinion: Taxing Travel- Where Does it End?

A doubling of the security tax on airline passengers from $2.50 to $5 – to finance the ever-controversial Transportation Security Administration (TSA)  - would cost airline passengers more than $700 million annually.

The proposal has justifiably run into criticism as airlines and the travel industry fight back. Yet travel remains an inviting target for new taxes, especially in an election year, with many states, localities and the federal government facing revenue shortfalls.

Opposing unfair, discriminatory or counter-productive taxes is a battle worth fighting. Every agent, agency and airline - indeed the entire industry - including destinations - has a vested interest fighting tax plans that adversely impact the cost of travel services. 

Airlines for America (A4A), for example, has urged Congress to consider further efficiency within the TSA  - not further taxes on airline passengers. The TSA tax was proposed in the fiscal year 2013 budget passed by the House Budget Committee. “Ironically, a budget proposal aimed at driving economic growth would in fact undermine it through this provision,” A4A argued.
Instead, A4A urges a risk-based approach to security, including TSA Pre Check and Known Crewmember programs, which enable TSA to focus its resources on greater threats. A4A says this is a better way improve efficiency within the TSA, which, A4A says, has seen its staff size increase by 400 percent in the last decade.
“We cannot continue to put more taxes on airline passengers, who already pay more than $60 in taxes on a typical $300 round-trip ticket with this disappointing and short-sighted approach that ultimately will discourage business travel and tourism,” said A4A President and CEO Nicholas E. Calio.

Airlines and their customers today pay 17 different federal taxes totaling $18 billion annually, and air travel is taxed at a federal rate that is higher than alcohol and tobacco, products taxed to discourage their use, A4A says.

Increased taxes on the airlines and travel are certain to be a major issue in the year ahead. Local, state and federal governments will try to finance programs by taxes and fees on the back of the industry.

The A4A is correct in arguing that effects would be to dampen or reduce demand and weaken an industry that already pays a lot of taxes to a lot of government agencies.

U.S. airlines are not alone in their concerns. The International Air Transport Association (IATA) comments: “To start, taxes now represent about 20 percent of the cost of a US airline ticket. The Administration’s 2013 budget proposal heaps even more taxes on aviation, with much of the receipts used to balance the budget or reduce the deficit. That won’t stimulate air travel or economic activity."

When Washington does look beyond taxation, the agenda often bogs down, IATA notes, on complex problems that defy easy regulatory solutions, or commercial matters that should be left to the workings of the free market. 

“Unfortunately, we are seeing the U.S. retreat from the free market principles by which it was guided during the first three decades of deregulation. In its place we have micro-management regulating how airlines may compete in response to the demands of the marketplace. This discourages creativity and adds costs,” the IATA says.

Another dimension of taxation is international in scope. A current example is the European Union’s Emissions Trading Scheme (EU ETS) impact on international aviation.

A4A says the EU ETS “violates international law and is an exorbitant money grab.” A4A said its members remain steadfastly opposed to the application of this cap-and-trade tax scheme to U.S. airlines and are committed to seeing it overturned.

There are a host of other proposed forms of taxation  - including Internet taxes on transactions, various hotel taxes and local levies that are often counterproductive, poorly thought out, discriminatory or costly to collect.

Over the years, A4A notes that in addition to traditional income and payroll taxes, airlines and their customers pay many special taxes and fees to a variety of authorities, both at home and abroad, including taxes and fees for homeland security, environmental protection, disease control, infrastructure enhancement, airport and airway operations and maintenance and agency financing.

Noteworthy also is the Global Business Travel Association’s (GBTA) annual study of car rental, hotel and meal taxes in the top 50 U.S. travel destination cities. One conclusion: “Discriminatory travel taxes and fees enacted on travel-related services impose an average increased cost on visitors of 56 percent over general sales tax. These taxes are often used to fund local projects unrelated to tourism and business travel.”

The bottom line is what is a fair tax that can stimulate – not stifle  - economic growth for a dynamic industry. Taxes also put a huge burden on trade groups, including the American Society of Travel Agents (ASTA), to monitor and defend against. In a combative election year taxes will remain at center stage.

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