Obama Tax Proposal Sticks It To Vacationers

Bet you didn't know that nearly 20% the cost of a U.S. domestic airfare is taxes. Well, get ready for even more of that.

The Obama administration’s deficit-reduction plan includes a new mandatory $100 surcharge per flight for air traffic control services, which airlines would pay directly to the FAA. The fee, however, would almost certainly be passed along to customers. The plan also raises the passenger security tax from $2.50 to $5 per non-stop flight, and eventually to $7.50.

A recent letter to the speaker of the House, the Senate majority leader and the co-chairmen of the Joint Select Committee on Deficit Reduction signed by 116 members of Congress expresses “strong opposition” to the proposal. “Imposing a new fee on the aviation industry in order to raise revenue would have a devastating impact on the aviation industry and fails to achieve our shared goal of improving the economy and creating jobs,” it notes.

The airline industry is unhappy, too. In a campaign that includes newspaper ads and a Web site (www.stopairtaxnow.com), it’s trying to prevent the proposal from taking off.

“Aviation is already taxed at a higher rate than alcohol, beer, cigarettes and firearms — products taxed at high rates to discourage use,” says Steve Lott, a spokesman for the Air Transport Association, an industry trade group. “In short, the administration is proposing a huge new tax on the least profitable and most highly taxed industry in the economy, while all its competitors are left untouched.”

But no one will be hit harder than passengers, experts say. “The airline industry will figure out some way to pass this tax along to the consumer,” says Thomas Cooke, a federal taxation expert at Georgetown University’s business school. “It’s incredibly unfair to air travelers.”

In fact, air travelers are paying more than their fair share in taxes, including a Sept. 11 fee of up to $10 per round-trip ticket, to fund the TSA, as well as a cargoload of other taxes, including passenger ticket taxes, international departure taxes, a jet fuel tax, an aviation security infrastructure fee and an immigration user fee.

What pisses travelers off more than anything is that the money would go to reduce the deficit, while the balance would fund something that passengers aren’t exactly clamoring for — a larger Transportation Security Administration. If you were wondering whether anything in the administration’s current budget-reduction proposal would benefit air travelers-- don't bother.

“There are zero benefits,” according to tax expert David Selig. “The only thing that gets raised are air travelers’ stress and frustration levels. Higher taxes provide travelers a stronger incentive to either stay home or find an alternative means of transportation, which ultimately costs airlines in the end.”

This proposal might make sense if it actually helped air travelers in a meaningful way (it doesn’t) or if you could make the argument that the airline industry is responsible for the current deficit (it isn’t).