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October 22, 2012

As airlines raise fees instead of fares, taxpayers pick up tab

WASHINGTON — For those who fly, the squeeze has become the way to beat the system.

"We take the maximum amount on board and squeeze it in," said Susan Williams, explaining how she and and her family avoid baggage fees on flights from Reagan National Airport.

The art of the squeeze is a matter of measurements. When Ross Davis flew to San Francisco last week he paid $25 to check his larger bag but squeezed his other bag, five inches smaller, into the overhead compartment.

American taxpayers are feeling the squeeze, too, even those who never board an airplane.

When the major airlines began charging fees for baggage a few years ago, the rationale they announced was straightforward: Fuel prices had spiked dramatically. Rather than increase ticket prices just as dramatically, airlines would charge for baggage.

Since then, they have collected $12.8 billion for something that once was free.

That has allowed the major airlines — called the legacy carriers — to keep their ticket prices competitive with low-cost airlines.

For taxpayers, however, here is the catch:

There's a 7.5 percent federal tax on every airline ticket. The money goes into a fund that pays for the air transportation system: airports, capital improvements and the operation of the Federal Aviation Administration (FAA).

But in nine of the past 11 years, the amount of money flowing into that fund — mostly ticket-tax revenues — has fallen short of projections. When that happens, Congress can increase general fund contributions to cover the FAA's budget. In both fiscal 2009 and 2010, Congress appropriated an additional amount of almost $1 billion.

When the airlines kept ticket prices down by shifting $12.8 billion to baggage fees, they also saved almost $964 million in federal taxes they would have owed if they had hiked ticket prices by that amount.

Was it a windfall, or was it salvation for a beleaguered industry?

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