Commentary: Business as Usual

While decrying the state of delays and attempting a passenger bill of rights, Congress said it would likely balance the budget by “borrowing” from the Aviation Trust Fund, illustrating just how hypocritical legislators are. That is, of course, business as usual in Washington and is at least part of the reason FAA has been unable to modernize. It has, in fact, not had a stable funding source, despite the fact that passengers pay about $10 billion annually in ticket taxes to fund the system. However, Congressional “fiscal trickery” as the Wall Street Journal calls it, makes it impossible to extricate that funding for needed modernization programs. WSJ is coming late to the subject. Industry has known about the fiscal trickery for decades, launched numerous public education campaigns targeted at passengers in order to raise a hue and cry with their representatives. Every effort has failed.
Calling latest Congressional moves a “heist,” the Journal reported, “We're told that senior Democrats are preparing a raid on the Federal Aviation Administration (FAA) trust fund to offset the AMT assault on the middle class.”
Congress needs $50 million to do it so there goes five year’s of trust fund funding which will likely delay modernization efforts even further than 2020. Twenty years ago, Former Senator Patrick Moynihan turned on Congress roiling about the fact that it raided all the trust funds in order to “balance” the budget. He indicated at the time, and his assertions hold true today, that the trust fund cupboards were bare, save for useless piles of IOUs, strung stem to stern with spider webs. So, this latest move, outlined in a story in the Wall Street Journal last week, comes as no surprise to industries who count on trust funds for funding – aviation, highways and even social security.
This is also why the aviation industry is right in blaming the government – Congress included – for not modernizing the system. So, any hope for actual reform to prioritize on modernization, clearly just flew out the window.
The hot topic now is reforming the Alternative Minimum Tax, according to the WSJ, which “will explode on 20 million middle-income taxpayers” without Congressional legislative relief. Budget rules require Congress to keep changes revenue neutral. In other words, if Congress wants changes that would cost the treasury revenue, it has to find a way to pay for it with tax increases elsewhere or spending cuts. And, just as it has for decades, it raids the trust funds in a budgetary shell game that makes it look as if government debt is not as large as it actually is, or – as before the Bush Administration – to look as if the budget is balanced.
The problem now is the fact that Congress is loathe to tax the private equity folks on Wall Street who are increasingly contributing to Congressional democrats. In a provision designed to help small business, the income from managing hedge funds is taxed at the lower 15 percent capital gains tax rate versus the normal 35 percent income tax rate if it were taxed as income rather than capital gains. The Washington Post reported that the non-partisan Joint Committee on Taxation estimated that taxing investment management services as ordinary income would yield a $26 billion over the next decade. It also said that another provision of the House bill eliminates “fund managers' abilities to shift compensation to offshore tax havens and defer tax payments on that money for years,” yielding another $23 billion through 2017.
"It's one thing to allow such generous tax treatment to a small business or perhaps a real estate investment. It's quite another to apply it to a billion-dollar equity fund," Victor Fleischer, a University of Illinois law professor, told the Washington Post.
“Conveniently, the airline tax expires in mid-November,” said the Journal, “which means Congress can use the tax's renewal under its budget rules to apply that $10 billion to offset AMT relief. So amid growing airline flight delays and congestion, Congress may pilfer that airline money and use it instead to solve a political problem of its own making.”
It reported that the House is trying to get general revenues to cover FAA. What a concept – using general revenues to fund the government. That hasn’t been in vogue for decades. FAA used to be funded by general revenues until the federal government created ticket and fuel taxes so they could take money that would have been spent on the FAA and use it elsewhere. It was all part of a government-wide effort to raise taxes without having to actually raise taxes. The government just called them user fees and, in aviation, ticket and fuel taxes. It is also one of the reasons why user fees are so opposed amongst non-commercial aviation interests. The percentage of general fund usage has declined steadily in the past few decades so as to be almost superfluous to the FAA budget. It made sense – those who use government services should pay for them, right? It just makes me wonder where the taxes we pay every April actually goes. So much for fiscal responsibility.
“The larger point here concerns truth in budgeting,” said the Journal naively. “Democrats campaigned on paygo last year as a tool of fiscal discipline, but the airline ruse shows that it is really a driver of fiscal chicanery. Its main goal is to make it all but impossible to cut taxes, thus dooming the Bush tax cuts when they are set to expire after 2010. But in the short term (before the 2008 election), paygo is forcing Democrats to resort to all kinds of budget contortions to disguise their real tax-and-spending intentions.
“They've already included one budget gimmick to evade paygo while they try to expand health care spending as part of the S-Chip bill,” the Journal continued. “And this week they are working to shift payment dates by a few weeks in the farm bill so that $9 billion of farm aid magically doesn't show up in the paygo budget window. Remarkably, many journalists still treat paygo as if it's a serious policy, rather than a political con.
“As for the Democrats,” WSJ continued, “They'd be better off if they junked paygo this year and passed AMT relief without raising taxes. Then they wouldn't have to punish anyone else to avoid raising taxes on their middle class blue-state voters, and they wouldn't have to resort to such fiscal dishonesty as this aviation heist.”
And, modernization may even happen after all.