Legislative and Political Report

ALPA Joins Security Tax Protest

$1.5 billion budget measure would eat further into airline revenues.

Peter Janhunen, Manager, ALPA Communications
Air Line Pilot, April 2005, p.32

You know you have a hot issue in Washington, D.C., when you can gather labor unions, trade associations, think tanks, and taxpayer groups in the same room to tell their story to a horde of reporters. 

"We believe this $1.5 billion tax proposal will put another 19,000 airline jobs at risk and jeopardize as many as 115,000 flights per year to small- and medium-size communities."
-- James C. May, president and CEO, Air Transport Association

ALPA's president, Capt. Duane Woerth, took part in just such an event in mid-February, when he joined officials of the Air Transport Association, the Regional Airline Association, the Cargo Airline Association, the National Taxpayers Union, and 11 other groups to urge Congress to reject a federal budget proposal that would double aviation security taxes and cost U.S. carriers $1.5 billion. 

The administration proposes adding a $3-per-ticket surcharge on each leg of each flight to use for aviation security. This would come on top of $3.2 billion the government already collects annually as security taxes on airline tickets--and would inevitably eat into profits (or increase losses). 

Capt. Woerth made two central arguments in his criticism of the tax proposal. The first concerned the fact that aviation security equals national security: "Homeland security is just that: defense of the homeland, the entire nation, and all of its cities and citizens. Singling out one industry this disproportionately is patently unfair. It is time for a new approach--and it starts with funding national security out of the general treasury." 

The second concerned the fact that the taxes would eviscerate revenues because they would not be passed on to consumers: "More is at stake here. The idea of saddling an industry that is already hemorrhaging billions of dollars with another $1.5 billion in taxes defies common sense. Federal taxes and fees already constitute as much as 40 percent of a domestic roundtrip ticket, more than consumers pay in federal consumption taxes on alcohol, tobacco, or gasoline." 

The coalition assembled for the press conference, which drew the heart of the D.C. newspaper and TV, government, and airline press corps, agreed that the new security tax will kill jobs and economic growth and will jeopardize local air service to small- and medium-size communities. Coalition leaders also argued that the federal government is breaking its post-9/11 promise to treat (and pay for) aviation security as a matter of national defense. 

"We believe this $1.5 billion tax proposal will put another 19,000 airline jobs at risk and jeopardize as many as 115,000 flights per year to small- and medium-size communities," said James C. May, president and CEO, Air Transport Association. "It's vitally important that efforts to improve our national security do not undermine our economic security in the process. And to be blunt, that is exactly what is happening now." 

U.S. airlines and travelers will already contribute $15.8 billion through 14 different federal taxes and user fees in 2005. The total tax burden represents 26 percent of a typical $200 roundtrip ticket, up from 7 percent 20 years ago. Of the $15.8 billion in total federal taxes and fees, U.S. travelers and airlines pay more than $3.2 billion in aviation security taxes. 

The new $1.5 billion security tax proposal, which raises the 9/11 security fee for air travelers from $2.50 to $5.50 per leg, with an $8 maximum per trip, would increase the total security tax burden to $4.7 billion. This is the same amount airlines would spend to employ about 60,000 people or to put in place 360,000 flights per year to U.S. communities. U.S. carriers are estimated to have lost $10 billion in 2004. 

"Any increase in the excise tax on airline tickets will not only cost airline jobs, but will also be felt in lower employment and payrolls in all of the industries that rely on air travel," said John Dunham, president of John Dunham and Associates and a noted international economist specializing in excise taxes. "Such a proposal, at a time when the U.S. airline industry is going through a painful restructuring, will likely cost U.S. taxpayers and businesses much more than the $1.5 billion that the president is seeking." 

Capt. Woerth also made clear that pilots have a stake in how the airline industry emerges from its current challenges, and this tax burden would make it even harder for managements to use the concessions they received from pilots and others to rebuild the industry. 

"Pilots--ALPA members--have invested billions in concessions so that their managements can restore a healthy bottom line to our industry. All our efforts will fail under the weight of this exorbitant taxation. The challenges our airlines face are serious enough without these taxes," Capt. Woerth said. "Managements have many issues to address: fare wars and web distribution, planning for rising fuel costs, and easing over-capacity in the wrong markets. They cannot do their jobs with another $1.5 billion sucked out of their revenue." 

The focus now turns to Capitol Hill, where ALPA and its allies on the issue will leverage their political contacts to structure effective opposition to the tax. 

On February 14, coalition members sent a letter to Sen. Ted Stevens (R-Alaska), chairman of the Senate's Commerce, Science, and Transportation Committee, urging him to oppose "this ill-timed, unjust, and unjustified tax increase" when the issue is raised during hearings on the Transportation Security Administration's proposed budget. 

The airline industry leaders asked Sen. Stevens for a commitment to stop the tax increase and pointed to President Bush's own words in 2004, when he said, "If you want something to flourish, don't tax it." The coalition agrees with that statement and said, in the letter to Sen. Stevens, "If you want the airline industry, the travel and tourism industry, the hundreds of thousands of companies that rely on air travel to conduct their business, and the communities through the country that depend on travel dollars to flourish, then don't approve this tax." 

On February 15, the Senate Commerce Committee held a hearing on the budget for the TSA. At that hearing, Adm. David Stone, TSA administrator, came under sharp criticism from senators for the proposed security fee increase. Chairman Stevens said the increase "could result in lost revenue for an industry that's already on the financial ropes." 

The panel's ranking member, Sen. Daniel Inouye (D-Hawaii), predicted that the fee increase would not make it through Congress. 

Besides ALPA, the coalition opposing the new security tax includes the Air Transport Association, the Air Travelers Association, Americans for Tax Reform, the Cargo Airline Association, the Competitive Enterprise Institute, Gerchick-Murphy Associates, the Interactive Travel Services Association, J. Dunham and Associates, the National Business Travel Association, the National Taxpayers Union, the Regional Airline Association, the Travel Business Roundtable, and the Travel Industry Association of America.