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Delta Airlines announces it is cancelling its affinity program with the National Rifle Association. In retaliation, Georgia’s lieutenant governor says he’ll try to kill a bill aimed at restoring a special jet fuel tax exemption that would largely benefit the airline. The exemption, which was first enacted in 2005, was repealed in 2015 when legislators got mad at something else Delta did. Oh, and Delta, which would get the lion’s share of the new $15 million special tax cut, made a $4.4 billion profit last year.
This, in a nutshell, describes all that is wrong with economic development tax subsidies.
As the drama playing out in Georgia makes explicit, these sorts of tax breaks are far more about politics than economics. Or, to put it another way, Delta’s critics are right to oppose the tax subsidy, but they are doing so for all the wrong reasons.
The tax break was first enacted in 2005, when Delta was in financial trouble and fuel costs were high. It was supposed to be temporary, but became Georgia’s version of one of those congressional tax-extenders that are renewed year-after-year. This one was regularly retained by the Georgia legislature despite the airline’s financial turnaround and the decline in fuel prices.
Then, in 2015, Delta’s then-CEO Richard Anderson, got crosswise with lawmakers for urging the state to raise motor fuel taxes. A GOP lawmaker ripped the company for taking its own tax breaks while pushing for tax increases on drivers. One thing led to another and the jet fuel tax break died.
This time, Georgia was moving to restore the tax cut on aviation fuel, but for all airlines that fly out of Atlanta’s Hartsfield-Jackson Airport. But let’s not kid ourselves: nearly all the benefit would go to Delta, which controls a 76 percent share of the airport’s market. Besides, why should the tax cut go only to flights out of the giant hub? What about smaller regional carriers at other airports (though Delta controls most of those markets too)?
Delta doesn’t need the tax break. It is the dominant carrier in the nation’s largest airport by passenger volume and uses that market clout to make huge margins. It isn’t going anywhere, with or without its share of the proposed $15 million tax cut. And with the airline’s near-monopoly, it is hard to believe the tax cut would reduce ticket prices.
Yet, lawmakers were prepared to restore a tax cut that the airline didn’t need (but would happily accept) presumably in response to Delta’s political clout. Now, some state politicians are talking about denying the tax break in response to the airline’s decision to cut ties with the even more powerful NRA.
Let’s not be naïve about it—economic development tax subsidies are nearly always about who has the political clout. But lawmakers used to at least pay lip service to the idea that these tax breaks were about jobs. Now, in Georgia at least, they have become an explicit form of political pork to be doled out to friends and taken from enemies.
It is enough to make all of us rethink these tax breaks from the bottom up.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.
(AP Photo/Carolyn Kaster, File)