HOW AIRLINES LIE ABOUT THEIR TAXES
By Joe Brancatelli
August 7, 2014 --A year after the terrorist attacks of September 11, 2001, a pair of airline bosses went before Congress and lied about their taxes. The deceitful claims were so easy to demolish that the airline industry skulked away and we didn't hear about the topic for a decade.
But the carriers are back now, packaging old tax lies in Orwellian new wrapping, and this time they are getting some mass-media traction. Led by the industry trade group, once quite logically known as the Air Transport Association but now masquerading as Airlines for America, the carriers have turned themselves into a commercial version of the Tea Party.
The government is an all-grasping, all-powerful money suck, airlines charge. The government is intent on separating you from your hard-earned money, they rage. Worst, the airlines shout, the tax-and-spend feds are hiding in plain sight because we're not allowed to tell you about taxes.
But the truth in the summer of 2014 is the same as the truth more than a decade ago: Airline tickets are comparatively lightly taxed. Travelers, not the airlines, pay the taxes. And as an Illinois Congressman forced the airline executives to admit in 2002, virtually every dime in federal levies on air travel go directly back into the commercial-airline system.
In fact, until a few weeks ago, when the September 11 security fee was raised and some of the increase was earmarked for debt reduction, not a penny of the levies we pay on airline tickets went to the general fund. Unlike virtually every other product and service you buy today, airline travel gets an almost free pass.
To cut through the fog being created by Airlines for America and airline executives who doggedly repeat its talking points, let's start at the beginning. And the beginning is the airline industry's unprecedented status as a national business.
Only the federal government can regulate airlines and only the federal government can tax it. So when you buy an airline ticket, your purchase is exempt from any state or local taxes. No state excise taxes, local sales taxes, nothing. Long before Internet peddlers were avoiding the local taxman, the airline industry was statutorily exempt.
Keep that tidbit in mind as we move to the second part of the facts: the actual amount of federal taxes you pay on each ticket purchase.
A dozen years ago, the carriers, represented by then American Airlines chief executive Don Carty, claimed that we paid as much as 26 percent taxes on an airline purchase. These days, Airlines For America circulates a graph showing that the current tax burden is 21 percent. John Rainey, chief financial officer of United Airlines, claims the tax rate is 20 percent.
That in itself is embarrassing for the airlines since it shows, if you believed Carty in 2002, ticket tax rates have declined in the last dozen years. Yet A4A "statistics" claim that air taxes have risen 49 percent between 2000 and 2013.
What percentage of an airfare is actually devoted to federal taxes and fees? That depends. But it's nowhere near the numbers the airlines and the feckless Airlines for America claim.
In a widely disseminated Associated Press dispatch last week, the reporter tagged taxes at 12 percent based on a $500 roundtrip ticket between New York and Seattle. That's not totally representative, either, because the taxes you pay vary based on the ticket price and whether a routing is a nonstop or connecting itinerary. But here are some other real-world examples I plucked at random on Tuesday morning:
Where did I get these tax breakdowns? Right off the airlines' websites. Each carrier does a painstaking job of breaking out the so-called "base" fare and the taxes: a 7.5 percent federal excise tax, the segment fee, the September 11 security charge and airport-imposed passenger facility fees.
Yet even though fares and fees are clearly explained by the airlines when you price a ticket, the airline industry claims you're being duped. That's the supposed impetus for the Transparent Airfares Act of 2014. Introduced by Bill Shuster (R-PA), the airline industry's foremost friend in the House of Representatives, the l egislation would roll back a 2011 Department of Transportation regulation requiring airlines to advertise total fares including all taxes and fees.
The goal of the House bill, of course, is not transparency, but opacity. The airlines want to go back to the days when they advertised fares stripped of the required federal taxes and you got a nasty jolt when you tried to book a seat. The House passed the Transparent Airfares Act by voice vote last month, but Sen. Robert Menendez (D-N.J.) has introduced a Senate bill that would specifically uphold the DOT rule.
With the Transparent Airfares Act most likely doomed, Airlines for America has changed tactics. It's now suing the Transportation Security Administration for its implementation of the higher September 11 security fee. The crux of the industry's complaint? That the TSA has defined one-way flight itineraries exactly the way the airline industry does and that would mean even higher security fees on those rare trips that require an airport layover exceeding four hours.
By now you're probably wondering about the airline industry's end game. After all, why do the airlines care about the taxes we, the flier, pay? And you may be wondering why all this fuss now, when airlines are recording historic profits.
The answer is simple: For every penny the airline industry can knock off federal taxes, they will raise fares by a penny. Think I'm kidding? Nope. During various recent periods of budgetary gridlock or government shutdown, when air taxes expired, the airline industry quickly raised fares to "compensate" for the lack of federal levies.
So, remember, when an airline tells you that your taxes are too high, it's code for your fares are too low.
ABOUT JOE BRANCATELLI Joe Brancatelli is a publication consultant, which means that he helps media companies start, fix and reposition newspapers, magazines and Web sites. He's also the former executive editor of Frequent Flyer and has been a consultant to or columnist for more business-travel and leisure-travel publishing operations than he can remember. He started his career as a business journalist and created JoeSentMe in the dark days after 9/11 while he was stranded in a hotel room in San Francisco. He lives on the Hudson River in the tourist town of Cold Spring.
THE FINE PRINT This column is Copyright © 2014 American City Business Journals. All rights reserved. Reprinted with permission. JoeSentMe.com is Copyright © 2014 by Joe Brancatelli. All rights reserved.