I never thought the day would come when I would be happy to see tax collections return. But, today is that day. After rumors that I reported on three days ago of the possibility of a deal on the stalled FAA extension, the extension passed.
A jubilant Ray LaHood, Secretary of the Department of Transportation proclaimed:
This is a tremendous victory for American workers everywhere. From construction workers to our FAA employees, they will have the security of knowing they are going to go back to work and get a paycheck – and that’s what we’ve been fighting for. We have the best aviation system in the world and we intend to keep it that way.
In a move that is a two-edged sword and temporary. The “bipartisan compromise” deal allows the Senate to approve the House bill extending the FAA’s operations through mid-September. It includes the provision that the Senate Commerce, Science and Transportation Committee found unacceptable enough to throw out almost half-a-billion dollars of tax revenues and throw around 70,000 workers off construction and government payrolls. That provision eliminates $16.5 million in air service subsidies to 13 rural communities. Passage of the bill is expected today by unanimous consent.
This agreement comes after approximately $400-something million of transportation taxes were not collected. This deal is not going to be without its detractors. Strange, but true — Part of the deal involves passing changes to the essential air services act and then providing the Secretary of Transportation the power to overrule those changes if he sees fit. (The maneuver is a way for the Senate Commerce, Science and Transportation Committee Chairman to save face.)
The Senate Committee on Finance and the House Committee on Ways and Means sent a letter to the IRS telling them to get back to work collecting taxes as soon as possible. That means GDSs, the giant central reservations that power travel agencies across the country, can turn back on their tax collecting modules and start raking in $20 million a day for the airport trust fund.
Dear Commissioner Shulman:
At midnight on July 22, 2011, the “Airport and Airway Extension Act of 2011, Part III” expired. The lack of an extension in expenditure authority from the Airport and Airway Trust Fund (trust fund), along with the expiration of excise taxes that support the trust fund means that since midnight on July 22, those taxes that expired have not been collected. The taxes that have expired include the 7.5 percent of fare tax charged to domestic air passengers, the domestic flight segment tax, and portions of the excise tax on non-commercial aviation fuel.
Tomorrow, August 5, 2011, we expect the Senate to pass H.R. 2553, the “Airport and Airway Extension Act of 2011, Part IV.” As it was written and passed by the House of Representatives before July 22, this legislation does not contemplate a period of time where the trust fund taxes have lapsed. Given the August recess, it is not possible to consider the elimination of retroactive application of trust fund taxes at this time. As the Chairmen and Ranking Members of the tax writing committees in Congress, we are concerned about the impact on consumers and the aviation industry if these taxes are collected retroactively. Furthermore, we understand that the IRS has limited resources—some of which will be required to restart systems and processes to begin collecting these taxes again going forward—and that the retroactive collection of trust fund taxes would add further strain to those resources. Therefore, we encourage you to utilize all your discretion and authority to extend relief for passengers and airlines with respect to ticket taxes that were not paid or collected because of the lapse and provide the industry a three day period of time to restart processes to collect the taxes.
The big question — will the airlines raise their airfares by the amount of the reinstituted taxes? Or, will the airlines keep airfares level and absorb the taxes after having a couple of weeks to gorge themselves on the money that would have gone to the tax collectors.
Don’t expect any legislation that will force the airline to rebate the extra monies they have been collecting since July 23rd or to provide an consumer redress. The airlines will be allowed to keep their ill-gotten gains, but these funds will come with a heavy price in trust on Capitol Hill. Senators and Congressmen were surprised by the avaricious moves employed by the airlines.
Rolling back airfares may be a move towards congressional reconciliation.
Monday will tell.
Charlie Leocha is the President of Travelers United. He has been working in Washington, DC, for the past 14 years with Congress, the Department of Transportation, and industry stakeholders on travel issues. He was the first consumer representative to the Advisory Committee for Aviation Consumer Protections appointed by the Secretary of Transportation from 2012 through 2018.
