Chuck Schumer says, “It so happens that the Treasury Department could stop” airlines from charging passengers for their carry-on luggage. The latest major issue to hit Congress, apparently a higher priority than the BCS college football bowl system and chewing tobacco in major-league baseball, started when regional carrier Spirit Airlines announced their intention to charge up to $45 per passenger for carry-on bags. But what Schumer doesn’t say is that Treasury started the problem with its previous government intervention. Radio Vice Online has the video:
Did Spirit suddenly get a case of the meanies? Not exactly. A change in tax policy created by Treasury in January made fees for carry-on baggage tax free, since they determined — in their expertise on aviation — that carry-ons are not an integral service for airlines:
The senator’s legislation blocks a private letter ruling issued by the Treasury Department in January that allows airlines to receive preferential tax treatment for fees on services that are not deemed necessary for air transportation. The bill [from Schumer] declares carry-on bags are necessary for air travel, which makes the carry-on fee subject to taxation.
Sen. Ben Cardin (D-Ma.) [actually Maryland] introduced legislation that bans the fee without fiddling with the tax code. Schumer supports his bill.
“We’re going to get this done one way or the other,” he said.
In other words, this is a case of corporate welfare meeting real-world consequences. The carry-on fee would allow airlines to soak passengers who have been packing more efficiently to avoid the baggage fees that airlines began to impose over the last couple of years to make ends meet. That revenue is subject to taxation, but the carry-on fee would have avoided it, which is why more airlines than Spirit would have eventually followed suit.
This is a good lesson in the consequences of a gamed, progressive tax code. Obviously not even the Treasury understands how such changes affect real-world situations, and neither will Congress in attempting to make this patch. It’s sheer folly to make one kind of baggage income taxable and another tax-free. It creates more compliance costs, which also eventually get passed on to the consumer.
If airlines want to reduce the issues with excessive carry-on baggage, which leads to some delays in departures, then they should eliminate the checked baggage fees they imposed not long ago. That was an obvious incentive for most of us to pack light and stick with carry-on luggage. The federal government should have stayed out of it, though, and let passengers and airlines work out the problem in the marketplace from the beginning.
Update: The Hill incorrectly identified Maryland as ‘Ma.’ in their article; it should have been ‘Md.’