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Tax and Crash

November 2, 2010

The United States and its co-conspirator governments are prepared to impose a new round of “security” mandates on airlines in response to an alleged discovery of explosives in Yemeni-based flights destined for Chicago. Giovanni Bisignani, the CEO of the International Air Transport Association, cautioned against yet another round of knee-jerk authoritarianism, and suggested at a minimum that airlines should not be made to bare the cost of new mandates alone:

Responsibility for security must be spread throughout the supply chain, beginning with the manufacturer, and airports shouldn’t be regarded as the first line of defense, IATA Chief Executive Officer Giovanni Bisignani said. Rapid development of technology is also needed to enhance cargo scanning, he said.

“Effective solutions are not developed unilaterally or in haste,” Bisignani said in Frankfurt. “If there are any longer- term adjustments required we must do so with all the facts in hand, with measures targeted to meet specific risks.”

Passenger airlines only now returning to profit after the recession shattered demand for travel would be impacted by stricter security rules because about 42 percent of air cargo is transported as “belly freight” on ordinary aircraft. One of the devices found last week en route from Yemen to Chicago was reportedly carried on two scheduled Qatar Airways Ltd. services.

Security measures cost airlines $5.9 billion a year, based in 2009 figures, Bisignani said in an interview, exceeding the $5.3 billion profit IATA forecasts for the industry in 2011.

Of course, airlines are a perennial whipping boy for governments eager to shift public attention away from the state’s failures. Even as the United States looks to demand more from air cargo operators in terms of “security,” the Justice Department has imposed over $1.6 billion in illegal taxes on these same airlines under the pretense of punishing antitrust violations. Just yesterday the DOJ’s Antitrust Division announced a $73 million tax on Air Nippon because, in the opinion of government prosecutors, Air Nippon’s prices between 2000 and 2006 were too high.

The Division claims that Air Nippon and its competitors met illegally — that is, without government permission — to discuss prices for certain services. In a market where all property is privately owned, this would not be controversial. Ownership includes the right to discuss the potential sale or distribution of your property with others, even if they happen to own similar types of property. But as we all know, we do not live in a free market, especially when it comes to air transport. Ergo, the Division has imposed what amounts to a windfall-profits tax to punish the air cargo firms, while taking some political prisoners for good measure:

Including today’s charge, as a result of this investigation, a total of 19 airlines and 14 executives have been charged in the Justice Department’s ongoing investigation into price fixing in the air transportation industry. To date, more than $1.6 billion in criminal fines have been obtained and four executives have been sentenced to serve prison time. Charges are pending against the remaining 10 executives.

We’re talking about a substantial burden on the air cargo industry. The $1.6 billion in taxes levied to date are just the tip of the iceberg. There’s the unknown costs of the DOJ investigation, the legal fees paid by individuals and firms, additional civil lawsuits brought by “injured” customers, and the subsequent reluctance of industry participants to engage in conduct that may benefit the market for fear of further DOJ retaliation.

In theory, a government that knew how to prioritize might have told the Antitrust Division to abandon its campaign early on; the $1.6 billion-plus in new taxes would have been better used to bolster air cargo security. But governments never prioritize; they want the “freedom” to pursue multiple contradictory goals simultaneously. After all, they’re not paying for any of this. And unlike, say, members of Congress, bureaucrats are not subject to periodic election. An Antitrust Division attorney is judged by how much private wealth he confiscates, not whether his actions make sense in any sort of grand policy scheme.

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