The last full re-authorization was four years ago, and 20 short-term extensions have been passed since then. The latest one runs out at midnight tonight.
This is expected to mean the furlough of 4000 employees, but does not affect air traffic control. Which of course leads me to wonder about the usefulness of those 4000 employees anyway.
Republicans in the House, led by Transportation Committee Chairman John Mica, are at odds with Senate Democrats — primarly over the Essential Air Service program.
Mica doesn’t propose to gut much from the program, just to end subsidies that amount to more than $1000 per ticket. Which doesn’t amount to much, certainly not real reform. But it just so happens to affect only 3 small airports which are represented by three powerful Democrats. (Wouldn’t want to cut subsidies for Republicans, after all!)
Unsurprisingly all Senate Majority Leader Harry Reid (D-NV), Senator Max Baucus (D-MT), and Sen. Jay Rockefeller (D-WV) are unenthused.
They won’t go along with the House on re-authorization without protecting their subsidies, and the House has been unwilling to authorize without killing those subsidies.
As I say, it’s a bit of a canard since the House really isn’t even reforming the “Essential” Air Service program. They’re just paring back the subsidies from three political enemies. (First rule: always remember that all politics is fake.)
Republicans also want to overturn a National Mediation Board decision which lowers the bar for unionizing airlines. Previously, a union had to obtain a majority of employees to unionize, the recent changes is that they only have to get a majority of those employees actually casting a ballot to vote in favor of a union. Republicans would like to reverse that change, and President Obama has threated a veto over it.
Meanwhile, several Senators was additional slots beyond the currently 1250 mile perimeter at Washington National airport. The current law is antiquated, originally intended to support long-haul traffic at Dulles it had the opposite effect, delaying the development of Dulles as a hub for a decade. (With more short-haul traffic shifted to National airport, there wasn’t nearly as much feeder traffic for Dulles’ longer flights, which meant that the airport could support only those flights necessary to carry DC-origination/destination traffic.)
Of course, the perimeter was cleverly set at 1,250 miles, which allowed flights to Dallas (anyone remember House Speaker Jim Wright?) but disallowed flights to, say, Denver.
Subsequently a series of exceptions have been made. John McCain, who represented the home state of then-America West airlines, was the chief proponent of flights beyond the perimeter (and in particular, those flights being awarded to America West).
No one proposes to eliminate the perimeter, incumbent carriers with exempted slots find those valuable and benefit from the legal monopoly they receive, competitors are not permitted to enter the market. And politicians benefit from handing out exemptions to constituents and contributors. So it isn’t just a matter of how many more slots are permitted to fly beyond 1,250 miles — it’s a fight over which Senators gets to hand them out to their favored airlines. The Senators hold the legislation hostage, demanding to be bought off.
Rick Seaney echoes the Secretary of Transportation in saying that failing to re-authorize the FAA means they aren’t permitted to collect taxes on airline tickets. He says that passengers could begin saving 15% or more on their tickets beginning early in the morning on Saturday, and that passengers with existing tickets traveling before the FAA can again collect these taxes should be entitled to a refund.
I’m not so sure.
Seaney acknowledges that under similar circumstances in the past, Courts have ruled that airlines didn’t have to return the overpaid taxes. And who is going to go through the hassle of trying to get the money back from the government? (Not to mention, my own feeling is it’s always a good idea to attract as little government attention as possible when it comes to taxes!)
My own guess is that no one will stop collecting ticket taxes at midnight. I’ve reached out to press people at Expedia, Orbitz, Travelocity, and United Airlines but it’s Friday afternoon in summer — not surprised I haven’t heard back. Still, this would take programming changes to implement and I doubt anyone has been proactively working to removetaxes from airfares, especially since no one expects such a thing to be long-lasting. Besides, assuming that the airlines don’t stop collecting taxes, it’ll be relatively simple for a legislative fix to simply retroactively authorize the taxes. And the authorization issue would seem to apply to when travel is consumed, rather than purchased, so how will United or Expedia know which tickets to collect the taxes on and which not to? If they stopped collecting taxes, they might be facing either (1) eating the cost of the taxes themselves or (2) passing on an add-collect to the passenger.
Either Congress will mandate that they remit the taxes paid during the period where FAA was without re-authorization or extension, or the agencies or travel providers will get to keep the taxes. Either way, they’re likely to want to continue collecting the taxes. And doing so should be cost free, at least to the extent that Seaney’s understanding of how courts have treated this issue in the past is correct.
So my bet is no reduction in airline ticket cost at midnight.
Besides, an elementary understanding of tax incidence theory suggests that people are paying roughly what they’re willing to pay in airfare now. One would expect prices to rise much of the way to compensate for removal of taxes. Contra Rick Seaney, I would expect any savings – were taxes to go uncollected — to quickly fall, prices rise, and the difference in price would be far less than his projected 13%.
In other words, nothing to see here, move along. We’ll know whether I’m right or Rick is right in about 8 hours!
Update: Looks like at least some systems are being prepared not to charge taxes. And of course new fares aren’t filed in real-time, so even if airfares do adjust that will happen over the coming airfare feeds, so no doubt there will be an opportunity to book tickets with those systems and carriers not charging tax and at prevailing airfares (ie without a corresponding airfare increase). Developing..
Update 2: Travelocity responds. According to Joel Frey, Travelocity spokesperson, “No, we will not display or include the government fees and taxes in the price of airfares if the bill expires at 12:01.” Sweeeeet!