Review of U.S. Domestic Ticket Taxes and Fees

The United States is currently witnessing a vigorous debate regarding the collection of user fees for public funding of air transportation infrastructure and security. By far the largest sources of such funding under the existing system are the various taxes and fees levied on domestic airline tickets. Yet, there is remarkably little research published on taxation in the U.S. aviation industry. Analysis of a large sample of tickets for travel in the continental U.S. shows that the effective tax rate has increased from 11% in 1993 to 16% in 2007. In inflation adjusted dollars, total domestic ticket taxes and fees have remained remarkably constant at an average of approximately $50 (in 2007 dollars). Base fares have not kept pace with inflation during this period, having instead dropped by 29% in real terms. Consequently, the proportion of taxes relative to the base fare has increased. Another factor contributing to this increase is the introduction of a federal security fee in 2002. The 16% effective tax rate documented here for 2007 is considerably lower than ticket tax examples cited by the airline industry and/or in the media. Such examples generally result in an effective tax rate of 25% or higher. They are almost always based on an assumed “typical ticket” with a connection in each direction. This overstates the impact of ticket taxes. All else being equal, the effective tax rate is higher on tickets with connections. However, only a minority of tickets sold have a connecting airport in the itinerary.