Democrats pressure airlines to give back windfall
WASHINGTON — Democrats ratcheted up the pressure on airlines Friday to give back the windfall they’ve reaped by raising fares during the tax holiday created by the partial shutdown of the Federal Aviation Administration. But it was unclear how much leverage they have to force the issue.
Two more groups of senators sent letters to airline CEOs and other industry officials asking them to roll back fare increases. The FAA’s operating authority — and airlines’ authority to collect $30 million a day in federal ticket taxes — expired last week as the result of a legislative stalemate between the House and Senate. Within 24-hours, most major airlines had raised their fares in amounts roughly equal to the taxes passengers were no longer being charged.
One letter was signed by Finance Committee Chairman Max Baucus of Montana, and six other senators, including Commerce, Science and Transportation Committee Chairman Jay Rockefeller of West Virginia. Baucus’ committee handles tax issues, including airline ticket taxes, and Rockefeller’s committee oversees the FAA. The letter asks airlines to lower their fares in an amount equivalent to the taxes not being charged.
“For some passengers, this could reduce the cost of flying by upwards of 10 percent per flight, or hundreds of dollars for frequent flyers,” the letter said.
But the senators also said they won’t try to recoup the lost revenue through retroactive taxes.
“There is no precedent for, and no intention that Congress would, retroactively impose aviation taxes on tickets purchased while the taxes have lapsed or used for travel during the period of the lapse,” the letter said.
Airlines also raised fares during similar tax holidays in 1996 and 1997. They were not required to return their windfalls afterward.
Illinois Sens. Dick Durbin, the No. 2 Senate Democratic leader, and Mark Kirk, a Republican, sent a separate letter to Nicholas Calio, president and CEO of the Air Transport Association, questioning the fare increases.
“Airlines should have the right to set their own prices based on the free market and current high fuel prices,” wrote the senators. “However, when nearly every major airline increases its rates in such a short period of time at similar levels, we worry that this situation is not the result of competition-based pricing, but rather a collective effort to take advantage of federal inaction.”
The association, which represents most large airlines, defended the fare increases.
“In every deregulated industry, it is the marketplace and the consumer — not the government — that sets pricing,” spokeswoman Jean Medina said.
The industry is also wrangling with the Obama administration and Congress over who should be responsible for handling tax refunds due passengers who bought tickets and paid taxes before the FAA shutdown, but did their traveling during the shutdown. The IRS has said ticket taxes are on travel at the time it takes place.
The administration wants airlines to handle the refunds because they already have mechanisms for refunding money to passengers who cancel flights. But airlines are adamant that the IRS should handle the refunds.
“It would impose large costs on the IRS — and taxpayers — if airlines were not willing to facilitate the process of issuing refunds for travel occurring while the taxes have lapsed,” Baucus and other senators wrote. “Airlines are in the best position to know when a passenger purchased a ticket, how much he or she paid, and whether and when the consumer flew.”
Airline ticket taxes go into a trust fund that pays for the majority of the FAA’s $16 billion budget. The shutdown has forced the agency to furlough 4,000 workers, halt the processing of $2.5 billion in airport construction grants, and issue stop work orders for nearly 200 construction projects, from airport control towers to runway safety lights. The construction industry estimates as many as 70,000 private sector workers have been, or will likely be, laid off during the shutdown.
Air traffic controllers and safety inspectors, whose salaries are paid with non-trust fund monies, have remained at work.
“There’s been relatively little pain for airlines thus far in the shutdown,” airports lobbyist Jane Calderwood said. “Right now they’re kind of having their cake and eating it too because they’ve raised fares and no one is paying for the (air traffic) system.”
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