That was fast. After barely a work week of hours-long airport delays and missed international connections, both parties have slunk away from the $85 billion in across-the-board cuts that were lopping $637 million from the Federal Aviation Administration’s budget. But wonks shouldn’t forget the FAA cuts too quickly. President Obama has unwittingly made the best case for privatizing the nation’s aviation-control system since controllers went on strike 32 years ago.
Air passengers were outraged this week — but they should have been doubly outraged. Unlike, say, Medicare, the FAA is supposed to be fully funded by the users of its services — in other words, the amount that passengers pay for air travel is supposed to cover the cost of those services. Since 1970, Congress and the White House have funded the FAA through a panoply of direct and indirect user fees.
When you buy a domestic airline ticket, you pay 7.5 percent of the price to the FAA, plus $3.80 per “flight segment,” indexed to inflation. International flights cost $16.70 apiece, also indexed. If you’re sending someone a gift via air freight, the carrier you choose will pay 6.25 percent of the cargo cost in FAA tax. And your airline — really, you — will pay a 4.3-cent-a-gallon tax on jet fuel.
In 2012, all those “dedicated taxes” added up to $11.6 billion. Last year, these fees funded all but 29 percent of the FAA’s operating and capital budgets. Considering that President Obama had to borrow 31 percent of last year’s general budget — which relies on general taxes rather than user fees — the FAA was more than holding its own. Plus, as the lobbying association for the airlines reminds the public, the FAA also serves private and military aircraft. “In large part,” Airlines for America notes, the general-fund subsidy “supports the nonairline functions of the FAA.” Finally, as the Government Accountability Office said in a 2011 report, “since the Trust Fund’s creation in 1970, revenues have in the aggregate generally exceeded spending commitments from FAA’s appropriations, resulting in a surplus.”
Forty-three years ago, the Nixon administration created this self-funding aviation system for a good reason. As the New York Times wrote back then of Nixon’s plan to create the Airport and Airway Trust Fund, “the distinctive virtue of any trust fund is that it relies on specific levies, normally ‘user charges,’ instead of general revenues, and it replenishes itself automatically without annual appeals for Congressional appropriations. Precisely because trust funds guarantee stable income, . . . many Congressmen oppose them.” Why? Dedicated funds are less susceptible to congressional diversion for other uses.
Or, at least, they’re supposed to be. Last week, the passengers who pay all of these fees saw that neither party had any compunction about taking their money and using it for other things, from Medicaid to defense. (By definition, because the FAA is running a smaller deficit than the rest of the government and because the FAA has its own sources of funding, that is the effect of an across-the-board budget cut.) When Congress finally capitulated, it wasn’t out of principle, but because of public anger.
Last week’s mass inconvenience also showed how short-sighted both parties are. Consider: A reduction of slightly more than 5 percent in airline revenue for the year — perfectly conceivable had Congress and the White House allowed the delays to persist — would have entirely erased the supposed fiscal benefit of the FAA budget cuts. Both parties, in effect, showed that they were willing to raid an important part of the still-struggling private economy — business and leisure travel — not even to save any money but just to prove a political point. (Either that, or it showed they know nothing about basic economics.)
Voting members of the flying public as well as travel, tourism, airline, and business associations should take away a useful lesson from this mess. Both houses of Congress continue to dither on what’s really eating the federal budget long-term. Medicare, for one, is taking smaller cuts than the rest of the economy. This noise without action means that the parts of the budget that really are vital to the private economy — such as keeping planes in the air — face increasing danger of encroachment from the rest of the budget. Do you want to pay your airline-ticket user fee to get, you know, actual air service, or do you want to pay the fee so that you can sit and wait for hours while your money goes to universal public pre-K?
Since dedicated user fees aren’t sacrosanct, maybe the airlines and air-travel associations should bring to the government a modest proposal: a real sequester. The airline industry could simply take the problem off the government’s hands altogether, by privatizing much of the FAA’s portfolio and the fees that pay for it (while requiring standard safety protocols).
Yes, privatization has its own problems — but so does paying the government to fly and then getting for that money only political contempt.
— Nicole Gelinas is a contributing editor to the Manhattan Institute’s City Journal. Reach her at @nicolegelinas on Twitter.