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Grover Norquist and Americans for Tax Reform Are Wrong about Passenger Facility Charge

I saw some unfortunate news today: Grover Norquist’s Americans for Tax Reform sent a letter to Congress opposing a possible increase in the cap of the airport Passenger Facility Charge (PFC). ATR is often an ally in CEI’s libertarian battles, but here they are both wrong on the facts and inadvertently supporting a tax-and-spend federal regime that the PFC and other facility user charges can help counter.

Before I get to why ATR is completely wrong on federalist and free-market grounds in opposing a PFC cap increase, let’s be clear about what a PFC is, why it exists as it does, and what Congress may (or may not) do with the cap.

First, the PFC is a local user charge. Congress authorized its creation in 1990 and it allows airports to charge per-passenger enplanement fees. The revenue raised can then only be used for a very narrow class of airport improvement projects. These funds are collected locally and never touch the federal Treasury.

Second, the only reason the PFC exists is because Congress outlawed user-based airport charges in the Airport Development Acceleration Act of 1973 (widely known as the “Anti-Head Tax Act” and codified at 49 U.S.C. § 40116). Why, you might ask, would Congress intervene? Well, this was a case of pure cronyism. In 1970, Evansville-Vanderburgh Airport Authority enacted an ordinance requiring that airlines using their airport collect and remit a $1 per passenger fee, minus any administrative costs the airlines assumed in the collection process. Delta Air Lines sued, challenging the charge on Commerce Clause grounds. Ultimately, the U.S. Supreme Court accepted the case and rejected Delta’s rent-seeking arguments in 1972. In response to their loss before the Supreme Court, Delta and other carriers then lobbied Congress to outlaw airport user fees, only taking one year to get their terrible law enacted.

Third, the PFC cap currently stands at $4.50. This was last raised in 2000 and inflation has eroded its buying power by approximately half since then. While CEI supports uncapping PFCs (and ideally repealing both the Anti-Head Tax Act and the PFC-creating section of the Aviation Safety and Capacity Act of 1990, and then letting airports choose their user-fee regimes without federal approval), this is unlikely in this Congress. Instead, we agree with the airports that raising the PFC cap to $8.50 and then indexing it to inflation is a sound move. Note that the PFC cap is not a charge itself, only the limit at what airports can locally decide to charge per passenger. This distinction is important in understanding why ATR’s opposition to the PFC makes no sense.

Back to ATR’s letter. In it, they claim that increasing the PFC cap to $8.50 would constitute a “tax increase.” This is false. Again, the PFC cap does not set a charge at any airport. It is a limit. That is all. Thus, Congress increasing a limit that local airports can charge is not imposing a fee that they must charge.

Moreover, even if Congress were requiring airports to charge a specific PFC, it would still not be a tax; rather, it is a classic example of a user fee. Unlike taxes, user fees can only be imposed on the service beneficiaries. Taxes, in contrast, have nothing to do with the provision of specific services. The primary beneficiaries of airports are the passengers who use the airports; thus, charging them a facility user fee that will be used solely for specific, statutorily-defined airport improvements cannot constitute a tax. Now, if the PFC revenues pooled by individual airports were suddenly diverted to things that don’t benefit the users—e.g., paying for food stamps—ATR would have a case. Yet, as I noted, the permitted use of PFC funds by the local airports who collect it is only authorized for a very narrow set of airport improvement projects. Given this reality, the faulty logic expressed in ATR’s letter becomes apparent.

Worst of all, ATR is unintentionally boosting arguments for increasing aviation taxes—which are taxes—to support the federal airport funding alternative to the PFC: the Airport Improvement Program (AIP). For those of us in the free market world who favor privatizing airports in the long-run, a PFC-style charge is the only viable primary revenue stream available. In contrast to ATR’s position, the White House has embraced a PFC cap increase and has supported reducing AIP spending. ATR makes no mention of AIP, but it is troubling that a venerable conservative organization appears to be adopting a position that is less fiscally conservative, pro-federalist, and pro-market than the Obama White House.

I don’t mean to imply any bad faith on the part of ATR. They do some excellent work and I know a number of the fine fiscal hawks who work there. But on this issue, they are mistaken and I can only hope they take the time to educate themselves on what the PFC actually is and isn’t.

For more on FAA reauthorization, see CEI’s agenda for Congress, Free to Prosper.