This thread may be more of Pit, and if deemed so by moderators, please move it. But I recognized that there may be some debate on the topic, so I put it here.
As most are probably aware, Spirit Airlines recently announced they were invoking a $45 fee if passengers chose to put carry-on luggage in the overhead bins. The fee would be reduced if it was reserved and paid for online. And there would be no fee for carry-on luggage stowed under the seat in front of them.
This move by the “low budget” low cost airline has outraged many consumers and has raised the ire of Senator Schumer from NY. Under the guise of looking out for the consumer he has launched a campaign to protect us against these types of fees.
First, the tax that Schumer is trying to get the supposed loophole tightened is not a tax on the Airlines, but a tax on the consumer. It is the equivalent of a sales tax that is collected by the airlines and remitted to the government. If Schumer is successful, then the 7.5% tax we pay on our ticket fare would also be applied to the fees as well, which are currently exempt from this tax.
Second, Spirit is low cost airline. Their fares are typically much lower than other airlines. Spirit’s other option would be to just raise their fares. But they have apparently decided that some passengers would rather limit their carry-on luggage to keep their total cost of flying low. Other passengers will have to factor the fee with their fare to compare the cost of flying with on another carrier.
The government should not be getting into how businesses price their products. Spirit is not a monopoly whose pricing should be regulated. Consumers can choose to continue to fly on Spirit or choose a competing carrier.
What next, congress passing laws to standardize pricing on fast food combo meals to keep it simple?
The airline is trying to get more money from the passengers, and are effectively raising the ticket prices for most people. Why shouldn’t they be taxed at the same rate for this revenue?
It’s sort of like those eBay sellers that would charge a penny for an item, but charge $20 or more for shipping something that cost $1.25 to mail…the sellers were attempting to screw eBay out of the listing fee.
I agree with Senator Schumer: if this airline is charging for a service that other airlines bundle with the ticket price, then it should be taxed at the same rate as the ticket price.
In addition, all these “extras” should be notified to the customer before the ticket is purchased, so that the customer can mare a fair fare comparison.
The tax in question, is not an income tax. Spirit pays income tax on all revenues it collects, even the new fee. The tax being discussed by Schumer is the excise tax collected from YOU, the passenger. Currently YOU do not have to pay an excise tax on fees, only on fares. If Schumer is successful, YOU will also have to pay the excise tax on the fee.
Schumer is either stupid or he’s misleading the public. There is no separate income tax on fares and fees that Spirit would pay. The tax he is referring to is an excise tax…please see other posts above, and as outlined in the OP.
But the point still holds. Too bad it’s the consumer who has to pay directly, but it is a tax loophole, and I don’t see the problem with closing it. I mean, supposing I run my airline so that I charge you an “airplane fee” that is independent from the ticket price, which is just the cost of the piece of paper?
Let’s just say for arguments sake that there are 45 variables that determine ticket price: fuel, maintenance, personnel, in-flight entertainment, and so forth all the way down to the cost of carrying the weight of baggage, whether checked or carry-on, the cost of cleaning the bathroom, etc.
On a major airline, most of these costs are included in the ticket price, and taxes are levied on the ticket price.
If these 45 areas of cost were broken out individually, it seems that some of these areas of cost would escape taxation. Senator Schumer seems to be saying two things: first, he doesn’t like the idea that his constituents would be charged for putting a bag in the overhead bin; and second, that it is not fair to exploit a loophole in the tax system to break out areas of cost into taxed tickets and various untaxed fees.
To make another example, let’s say Spirit decided to charge people $2 to use the bathroom. United Airlines places that $2 in its ticket cost, along with the tax (isn’t it around 7%?). Why should Spirit and its customers be able to screw the Federal government out of 14 cents in revenue by turning this cost into a fee?
Yes, customers pay the tax. So what? Every other customer on a non-Spirit airline pays the tax, too.
But YOU (why are we capitalizing our proper nouns today?) have to pay the tax now on non-Spirit flights on fares, fares that presumably include the cost to the airline of dealing with carry-on luggage. Spirit is decreasing the cost of their tickets and charging the carry-on bit sepreately so YOU pay less tax when flying with them. Schumer is adding a tax on the fee so that YOU will end up paying the same tax regardless of how carry-ons are bundled. Hence he’s closing a loophole, as he claims.
He can’t be talking about an income tax: corporations pay tax on their net income, and fees such as baggage fees are already included in their net income. Schumer didn’t say it was an income tax involved – just that he wanted to change the “tax code”, which presumably talks about taxes other than personal and corporate income taxes.
It is a problem when a US Senator says he’s doing it as a means to influence Spirit to eliminate the fee. This is in turn garners support for his action. Hell, even the first two responders to this thread believe it to be a tax the airline is avoiding. Again either Schumer is misleading the public or he doesn’t understand it himself. Since he is US Senator, I’m going with the former.
If you run your Airline, you can charge whatever fees you want. Consumer’s have a choice on who they fly with. If they don’t like how you price things, they can fly with someone else.
To pick up on your fast food analogy. If we charged an excise tax on burgers and you started selling hamburger patties and charging “fees” for bun, why shouldn’t the hamburger excise tax folks want to tax the fees for the bun as well?
You can look at it as charging more for folks who want the bun or charging less to those who don’t.
The YOU is capitalized to distinguish between a tax that Spirit pays.
You are correct in your math. But his argument for changing the excise tax charged to customers, is that it is being done to protect customers.
Nice protection, they now have to pay an additional 7.5% on top of the fee. Most people do not realize this. They think it is a tax on the airline. (See first two responses to this thread.) It is misleading.
I lost respect for Schumer when he caved on the bush tax cut issue after he realized that carried interst taxation would affect some of his billionaire donors adversely, but, I can’t really blame him for tryign to put a populist spin on a legitimate attempt at closing a loophole.
Spirit Air can still charge whatever it wants in order to compete, it just can’t make its final ticket costs cheaper than other airlines by recategorizing its ticket costs into a untaxed “fee”
Got no problem with that. I’ve got no problem with closing the loophole, as a tax generating mechanism…but don’t sell it to me as a tax on the corporation when it really is a tax on consumers, and that your doing it to protect the consumers.
I don’t think that’s a really good analogy, because I doubt if any jurisdiction taxes the meat and the bread on a hamburger differently. A better one would be if a fast food store had a $1 “delivery charge” or a $1 “handling fee” on each hamburger, and charged that for every hamburger served in their restaurant. If hamburgers have a sales tax, should the extra charge or fee attract the sales tax?
His argument is that the current tax-code encourages the airlines to fractionate their fares into a bunch of different fees, which Schumer thinks is bad for consumers (I’m not sure I agree, but there are reasonable arguments either way). Ravenman post basically explained how this incentive works. Schumer is changing the tax-code to get rid of this incentive, hence by his thinking, protecting consumers from having to try and decode how much their airline tickets cost after a half-dozen fees are applied.
Again missing the point of the thread. I’m not questioning whether fares and fees should both have an excise tax applied. These are just tax revenue generating mechanisms. They come in and they go out depending upon the funding needs of the government.
Spirit acted in accordance with current regulation. This actually benefitted consumers, from a tax perspective. If the government wants to change the law/regulation, that’s fine…just be honest about what your doing. Don’t pretend faux outrage and then raise the taxes on the people you are supposedly trying to protect.
I don’t know that most people would be against it. I am not really in favor of having my airline ticket broken down into its myriad component parts in order to skirt a 7% excise tax on the food and beverages or the baggage costs.
WOW! Those that are math challenged need to be protected from companies that require you to add before you are able to compare pricing to other carriers.
So we should expect similar legislation, that will require all meal combos to include similar things. Will all combo meals have to include a dessert now, to make the comparison simpler?