## Thursday, January 26, 2012

### Taxes and Fees Revealed, Part I

PREMISE
"The rich always get taxed at a preferential rate. They have rigged the system, know how to evade taxes, and don't carry their full weight. It's not fair."

We are going to examine taxation without representation today. Specifically, the way that governments and airlines levy taxes and fees on passengers. Thanks to new regulations, airlines must disclose all fees, taxes and other charges. This is excellent for detail-orient, math-saavy shoppers. And it might provide some evidence that the rich pay lower tax rates than the poor. Or not. Let's take a look.

EVIDENCE: CASE STUDY 1
Take a look at this fare breakdown provided by Excel Math's  favorite low-price airline, who shall remain unnamed:

In this case, the fare from San Diego to Providence, RI is \$268. Taxes and fees add \$67. Divide the fees by the fare to get a 20% "tax" rate for a discounted ticket (bought by a "poor" or frugal person?)

In this case, the fare from San Diego to Providence, RI is \$919. Taxes and fees are another \$109. Notice the Facility Charge and Security fees are lower for the second flight (did it route through a different intermediate airport?) That's about a 10% "tax" rate for the full-fare ticket bought by a "rich" (or last-minute-emergency) passenger.

EVIDENCE: CASE STUDY 2
The next case shows a non-stop international flight to London. There are lots of extra fees and these do not include baggage, seat upgrades or other discretionary choices by the passenger. It's not shown on this graphic, but the total price in this case was \$841 for a restricted coach ticket. The fare was \$224 plus fees of \$199 and an outrageous fuel surcharge of \$418!

If you divide the fees by the fare it's 89% "tax"; if you divide fees by the total (including fuel surcharges), it's a 24% "tax".

Finally, here's a similar international flight to London, in Business Class. We see the "Air Passenger Duty" charge has doubled! This business class, completely flexible and refundable ticket is priced at \$11,691 with \$10,705 as the fare, plus total taxes and fees of \$292 and "fuel surcharge" of \$694.

If you divide the fees by the fare it's 2.7% "tax"; if you divide the fees by the total (including fuel surcharges), it's a 2.5% "tax".

CONCLUSIONS
More expensive tickets pay a lower percentage of taxes and fees, but I don't think we can use airline ticket prices to prove the rich are getting preferential "tax" treatment. We can conclude this:

• Basic fees are a huge proportion of an inexpensive ticket, and a much smaller portion of a high-priced ticket. As a result, they obscure the "nearly free" fare on the first example.
• We can see that "fuel surcharges" are not equal for every passenger, and not proportional to the fares - are they determined by the square footage occupied by each passenger on the aircraft?
• Why does the UK charge a Business Class passenger twice as much to enter the country as a Coach passenger?