Conned Air: How Airlines Skyjacked Your Tax Savings

Corporations are forever arguing that all that stands between consumers and paradise is the “lousy gummint” and its lousy regulations.  “Get out of the way!” is their rallying cry.  Well, we had a bit of a natural experiment this past summer, as Congress forced a shutdown of the Federal Aviation Administration.  (As it happens, the shutdown sprang, in part, from anti-union ideological reasons, but that’s a whole other story.)

In addition to furloughing some 4,000 FAA employees and idling tens of thousands of construction workers, the shutdown deprived the government of an estimated $30 million in ticket taxes—every day.

Some might argue that the government needs that revenue.  But let’s focus on the positive: Without the taxes, ticket prices are lower for consumers, and that’s a good thing, right?  Awwww, you’re adorable.  A couple of airlines did pass the savings on to travelers, but according to a travel agent I spoke with (yes, they do still exist), most airlines did something else entirely.

My friend the travel agent made the claim (subsequently verified independently) that most airlines simply increased their ticket prices to what they would have been with the taxes built in.  Then they simply pocketed this extra money.  So consumers lose by paying artificially high ticket prices, citizens lose by having vital programs starved of needed tax revenue — but the airlines get to skim a little extra off the top for shareholders.  Stay classy, airlines!

Of course, the point here is not that airlines – which, let’s face it, are truly struggling relative to many other industries – did some profiteering.  The point is that there is a prevalent Pollyanna-ish view on the anti-government right that, absent regulations, corporations will somehow act for the common good.  But the incentives are to do exactly the opposite.  Which is fine: profit should be incentivized.  But consumers and the public should be protected at the same time: There remains a critical role for lousy gummint too.