Airline industry confusing ‘Sin Taxes’ and Fixed Costs

The airline industry has recently used every opportunity in Washington to claim that they are so overtaxed by government the effect is worse than so-called “sin taxes.” 

The airline industry uses a $300 fare and calculates, accurately, the impact of the federal ticket tax, flight segment fees, airport passenger facility charges (PFCs) and a federal security surcharge to show more than $64 on the $300 sample fare, or 21 percent. The airlines claim the total of these charges amount to virtually punitive treatment of the industry. The “sin tax” charge is useful as a political and media attention-getter, but it’s wrong.  

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Most of the airlines’ calculation is made up of fees charged for services other industries consider fixed costs for plant and production line. The local airport PFCs can only be used for capital aeronautical improvements at airports the airlines serve, or the airlines’ equivalent of other industries “plant.” The federal ticket tax and segment fee go entirely to running the FAA and the air traffic control (ATC) system, the airlines equivalent of other industries “production line,” and a grant program that is also restricted to federally approved, aeronautical development at all airports (more plant).   

There is absolutely nothing about paying for the cost of facilities and services a business needs to operate that amounts to the equivalent of “sin taxes.”  

If the airlines built and operated their own airports and air traffic control system and still paid 21 percent in special taxes to government general funds, they would have a point, but they don’t. 

I have enormous respect for the men and women who run our nation’s airlines in one of the toughest, most competitive businesses in history. But one of the few places they enjoy an advantage over other industries is that most businesses have to buy their own land, build plant, install production lines, and do it all with their own up-front capital, before they can produce a product or service. These other industries then can hope to start earning back their fixed, capital costs while also trying to make an operating profit.  

But in the airline business, local governments provide the plant (airports) and the federal government provides the production line (ATC), at cost, without profit, with tax-exempt financing as a bonus. 

There are serious arguments to be made by the professionals who run our nations’ airlines. Trying to claim that the capital costs of facilities and services required to run their business are the equivalent of “sin taxes” isn’t one of them.    

Alexandria, Va.