With Congress fixated on the debt limit negotiations, the authority for the FAA to collect taxes lapsed last week providing a much-needed reprieve for the airline industry which is beleaguered by aggressive government regulation and onerous taxation.

Lawmakers immediately deflected from their own dereliction by alleging that the lapse in FAA authority amounted to “theft” by airlines of funds supposedly owed to the government. More exactly, lawmakers are apparently dumbfounded why airlines aren't collecting taxes that are no longer in effect, and refusing to take a voluntary hit on prices as a result.

This newest derision from the Feds reflects a longstanding ignorance of market forces in the travel industry (and, one could argue, private enterprise writ large). In the past decade, the average federal tax burden on airlines has grown by 37 percent, while the average price of a round-trip flight fell by 21 percent. Recently federal bureaucrats have intruded further, dictating to airlines the prices they can charge for services, how customers can book travel and even the schedule airlines are required to keep, regardless of the multitude of contingencies outside a carrier’s control. Even while admitting that the crushing tax burden on airlines has suppressed the industry, the federal government has pushed on, auguring a steep rise in gas prices, an additional burden on the industry.

Now, Members of Congress are alleging their negligence in reauthorizing the FAA to collect taxes requires airlines to step in and do the job for them. This ignores the reality of the heavy handicap government places on an otherwise robust market.  Failing to learn from the elusive economic recovery the harm created by an uncertain tax climate, lawmakers are castigating airlines’ natural response to myopic tax policy.

Rather than questioning why airlines didn't drop prices below market value to reflect the temporary tax reprieve, policymakers should recognize only a long-term reprieve from heavy taxation will ensure lower prices.  The current inflation of prices from heavy taxation creates an artificial floor on the price airlines can afford to offer travelers. Bureaucrats requesting lower prices on air travel should recognize the role they’ve played in proscribing that possibility.

Posted by Mattie Duppler on Friday, July 29, 2011 5:38 PM EDT

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