Heritage Action Supports Jones Act Repeal Efforts

In the wake of Hurricane Maria’s damage to Puerto Rico, the Trump administration waived the restrictions the Merchant Marine Act of 1920, commonly known as the Jones Act, imposes on shipping to the island. The Jones Act is an outdated WWI protectionist law that regulates domestic U.S. shipping practices by mandating any good shipped by water between two points in the U.S. must be transported on a U.S. built, U.S.-flagged, and at least 75 percent U.S.-crewed vessel.

In effect, the Jones Act drives up shipping costs for American consumers by creating a government monopoly for U.S. only shipping commerce. According to a Heritage Foundation report, Sink the Jones Act: Restoring America’s Competitive Advantage in Maritime-Related Industries:

“Foreign companies carry more than 80 percent of traffic in American international liner commerce. The Jones Act keeps otherwise uncompetitive elements of the American shipping industry afloat, but this legislative gift to the shipping industry carries a stiff price. The Jones Act harms the U.S. economy by driving up shipping costs. It increases energy costs, stifles competition, and hampers innovation that is essential to the long-term competitiveness of the U.S. shipping industry, and the national security argument for the Jones Act is weak at best.”

For the island of Puerto Rico, the Jones Act has a significantly worse effect given its dependence on the shipping industry to transport goods and services. According to the Federal Reserve Bank of New York, the Jones Act is especially harmful to Puerto Rico:

“It costs an estimated $3,063 to ship a twenty-foot container of household and commercial goods from the East Coast of the United States to Puerto Rico; the same shipment costs $1,504 to nearby Santo Domingo (Dominican Republic) and $1,687 to Kingston (Jamaica)—destinations that are not subject to Jones Act restrictions…Shipping goods to and from Puerto Rico costs considerably more than shipping to and from the Island’s regional peers, imposing an important cost on Puerto Rican businesses and dampening the economy’s competitiveness. Much of this relatively high cost of shipping is widely attributed to the Jones Act.”

Thankfully, legislative efforts to repeal the Jones Act for the island of Puerto Rico have gained momentum. Sen. John McCain introduced a bill to exempt Puerto Rico from the coastwise laws of the United States (commonly known as the “Jones Act”) (S. 1894) that would repeal the Jones Act for the island of Puerto Rico. In the House, Rep. Gary Palmer introduced the Puerto Rico Humanitarian Relief Act (H.R. 3966) that would exempt Puerto Rico from the Jones Act for five years.

There are three American territories currently exempt from the Jones Act, including the U.S. Virgin Islands, which was exempted in 1992. Ideally, Congress should pass legislation permanently repealing the Jones Act for the entire country, but the legislative efforts by Sen. McCain and Rep. Palmer represent a good first step toward ending this damaging and outdated law. At a minimum, Congress should include a provision to repeal the Jones Act on upcoming disaster relief legislation.  

Heritage Action supports Jones Act repeal legislation, encourages Representatives and Senators to support it, and reserves the right to key vote in the future.

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Internet Sales Tax Should be Dead on Arrival

The internet is one of the most exemplary free market and innovation success stories of our life time. Over the last few decades, it has helped grow the economy, expanded opportunities for entrepreneurs, and enhanced consumer choice for all Americans by allowing unprecedented access to online goods and services.

Unfortunately, internet freedom is under attack by politicians willing to distort markets and tilt the playing field toward their favored businesses at the expense of the vast majority of Americans who benefit from online marketplaces.

The latest attack on the internet and its users is internet sales taxation. Earlier this year, Reps. Kristi Noem (R-S.D.) and John Conyers Jr. (D-Mich.) introduced the “Remote Transactions Parity Act” (H.R. 2193) while Sens. Mike Enzi (R-Wyo.), Dick Durbin (D-Ill.), Lamar Alexander (R-Tenn.), and Heidi Heitkamp (D-N.D.), introduced a similar bill titled the “Marketplace Fairness Act” (MFA) (S. 976).

Although they vary slightly, both proposals allow state governments to tax out-of-state sales on internet-based transactions. If enacted, an internet sales tax of this kind would disrupt the free flow of commerce, impose revenue collecting compliance costs for millions of businesses, and brazenly violate the classic American principle of “no taxation without representation.”

The U.S. Constitution, as confirmed by the Supreme Court’s 1992 decision in Quill Corporation v. North Dakota, was designed to protect interstate commerce from this sort of federal intrusion among states. James L. Gattuso, Senior Research Fellow in Regulatory Policy at The Heritage Foundation, explains:

“Under Quill, states can require businesses to collect their sales taxes only if those businesses have a physical presence (a building, warehouse, or employees) in their state. For instance, if a customer living in Virginia buys a product from a retailer with a physical presence only in Maryland, the customer pays no sales tax because Virginia can’t force the Maryland retailer to collect the tax.”

Supporters of the internet sales tax seek to overrule Quill, and the Court noted in its decision that Congress has authority to do so under the commerce clause. However, related legislative proposals thus far are severely misguided.

Identifying the political factors at play is critical to informing policy solutions. As Heritage Action previously outlined:

“The MFA is simply a political ploy to line the pockets of revenue hungry state governments that don’t want to cut spending. Worse, major retailers are playing politics to drive out competition from small, Internet-based competitors. Many big businesses have a physical nexus in several states and already collect remit sales taxes for online sales specifically because of their physical nexus in a variety of states. They are working to convince small brick-and-mortar companies that they are on the same team — a team that wants to ensure small, online businesses have to bear greater tax burdens.”

Businesses like Amazon, who have a physical presence in almost every state, are also in favor of a convoluted federal internet sales tax scheme because it aligns with their current business model. The company announced earlier this year it would voluntarily collect sales taxes in every state that has a sales tax.  The various internet sales tax bills in Congress would not hamper big online retailers, but would punish small startup businesses and mom-and-pop remote sellers. As Sen. Ron Wyden (D-Ore.) warned in 2013, “an Oregon business would have to collect taxes for New York, but Chinese firms wouldn’t have to collect taxes for any State.” Wyden predicted that “people are going to end up calling” the internet sales tax scheme “the shop China bill.”

In addition to the mounting evidence that an internet sales tax would be economically detrimental, there is a generational divide among Americans. A 2013 Gallup poll found that 73 percent of Americans between 18 and 29 opposed an internet sales tax. 62 percent of those between 30 and 49 felt similarly. However, only 46 percent of those 50 and older opposed an internet sales tax. The RNC’s Growth and Opportunity report from 2012 urged lawmakers to “Promote forward-looking, positive policy proposals that unite young voters” whose “perception of the two parties was born during the Barack Obama era.”

Republicans in Congress should reject misguided efforts to pass an internet sales tax and instead focus on fulfilling their campaign promise to enact comprehensive tax reform that cuts rates and helps grow the economy. Passing an internet sales tax, especially in the context of a larger tax reform package, does the opposite. Heritage Action will continue to work with members of Congress to oppose internet sales taxation, and would key vote against a proposal should it come for a vote.  

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Pro-Growth Tax Reform: Myth vs. Fact

The Trump administration and Republican congressional leaders released a long awaited tax reform outline that would finally fix our broken tax code. If passed, this recent proposal would grow the economy, create jobs and increase wages for American workers by 1) lowering and simplifying individual tax rates for all Americans, 2) cutting taxes for large and small businesses alike, 3) permitting tax-free entrepreneurship, 4) ridding the tax code of special interest handouts, and 5) ending the practice of double-taxing overseas profits made by U.S.-based companies who want to invest in America.

Myth: The GOP tax plan is a big tax cut for the wealthy.

Fact: The GOP tax plan is a tax cut for all Americans. Under the proposed tax framework, the current seven bracket system with rates of 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, 35 percent, and 39.6 percent is reduced to just three brackets at simpler and lower rates of 12 percent, 25 percent, and 35 percent. In addition, this plan nearly doubles the standard deduction to $12,000 for single filers and $24,000 for married couples, resulting in an expanded zero percent bracket. This means that a family does not have to pay tax on the first $24,000 they earn. This is the biggest benefit to low and middle class families. Other details will come as tax-writing committees begin drafting the actual legislation.

Myth: The GOP tax plan is pro-business, not pro-worker.

Fact: The GOP tax plan cuts taxes for all businesses and that will benefit the American workers. Most empirical estimates conclude that labor bears between 75 percent and 100 percent of the corporate tax burden. Corporations pass the cost of the tax burden to their workers in the form of lower wages or to their customers in the form of higher prices. U.S. corporations employ 54.8 million hard-working individuals, more than half of Americans invest in the stock market, and almost 40 percent of corporate stock is owned through retirement plans. By cutting the corporate tax rate from 35 percent to 20 percent, and the pass-through rate from 39.6 percent to 25 percent, the GOP tax plan would result in higher wages for American workers and more return on investment for the millions of Americans saving for retirement and investing in our economy.

Myth: The GOP tax plan will blow a hole in the federal debt.

Fact: The primary driver of America’s growing debt is the federal government’s addiction to spending. Over the last ten years, the federal government has spent at a higher level than it ever has in American history. In fiscal year 2015, the federal government spent a total of nearly $3.7 trillion or almost $30,000 per U.S. household. The current rise in federal spending has resulted in $20 trillion in total national debt. Federal debt held by the public is now equivalent to 74 percent of the entire U.S. economy. While some politicians blame the rise of the national debt on lower taxes, (tax revenue as a percent of GDP is well above the historic average and baseline projections will continue to increase over the next 20 years), the problem is clearly irresponsible federal spending. The federal government has a spending problem, not a revenue problem.

Additionally, the GOP tax plan will generate economic growth that leads to increased federal revenue. Specifically, the GOP tax plan cuts the corporate tax rate, the small business tax rate, and allows for full and immediate expensing. These provisions will lead to higher levels of savings and investments – the two key components of economic growth. According to recent analysis, pro-growth tax reform has the potential to grow the economy by 10 percent over the next 10 years and increase the average American family’s wages by more than 7 percent or about $4,000 for someone earning $50,000 a year. At the end of the day, the purpose of tax reform is not to give the federal government more money, but to give the American people more jobs and higher paychecks. Increased federal revenue is a side effect of pro-growth tax reform, but the best way to reduce debt is to reduce spending.     

Myth: Doubling the standard deduction will undermine the mortgage interest deduction, hurting homeowners and the real estate market.

Fact: Doubling the standard deduction benefits everyone including homeowners. While doubling the standard deduction will encourage homeowners to take the standard deduction over the mortgage interest deduction (MID), it does not necessarily mean homeowners receive less of a tax break. According to the National Association of Realtors (NAR), the average monthly payment for a mortgage is just above $1,000 totaling about $12,732 a year. Under the GOP tax plan, the standard deduction will be $12,000 for single filers and $24,000 for married couples. In addition, economic studies suggest that eliminating the MID — which this plan does not do — would lower housing prices, and potentially lead to an expanded first time homebuyer market for the real estate community.  

Myth: Repealing the state and local tax deduction hurts middle class families.

Fact: The state and local tax deduction currently forces federal taxpayers in low-tax states to subsidize taxpayers in high-tax states. The biggest beneficiary of this provision are high-income earners, not middle class families, who live in states with high taxes. In practice, this provision incentivizes state and local governments to raise their tax rates since local voters can write off the high taxes and don’t hold their local politicians accountable. By eliminating this provision, Congress can lower tax rates for all Americans by as much as 12.5 percent and apply pressure on big-government states like New York, Illinois and California to lower rates on their taxpayers. The state and local tax deduction is bad policy and Congress should eliminate it as part of tax reform.

Myth: Repealing the death tax (estate tax) is a giveaway to the wealthy.

Fact: The death tax is an unjust form of double taxation that kills family owned businesses and farms. Most wealthy individuals avoid paying the death tax by putting their wealth in liquid assets, setting up various trusts or partnerships, or by making charitable donations and gifts. The hardest Americans hit by the death tax are family owned businesses and farms whose wealth consists of physical assets such as buildings and land. Repealing the death tax will correct this injustice and boost U.S. economic growth by more than $46 billion over the next 10 years and generate an average of 18,000 private-sector jobs annually. Dying should not be a taxable event.  

Myth: The Alternative Minimum Tax (AMT) is a tax cut for the wealthy.

Fact: The AMT is an unnecessary complexity that is poorly designed. This provision requires certain individuals and businesses calculate their taxes two ways and pay the government the larger of the two amounts. In general, the AMT takes effect when deductions are “too large” relative to income. The AMT does its intended job poorly and inefficiently by burdening taxpayers with additional paperwork and raising little extra tax revenue. The GOP tax plan simplifies the tax code and ends special interest carve outs, making the AMT unnecessary.

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Memo: Amending Graham-Cassidy To Ensure Choice

To: Interested Parties
From: Heritage Action for America
Date: September 21, 2017
Subject: Amending Graham-Cassidy To Ensure Choice

Conservatives are justifiably frustrated with the obstinance displayed by their moderate colleagues over the past nine months, a frustration that is likely exacerbated by the leading roles played by Senators Lindsey Graham (R-S.C.) and Bill Cassidy (R-La.) in a last minute effort to take action on Obamacare. Regardless of how Republicans and the conservative movement arrived at this moment, Graham-Cassidy should be evaluated on the policy, process and politics of this particular moment. While no one should be under the illusion that Graham-Cassidy delivers on the Republicans’ seven-year campaign promise to repeal and replace Obamacare, it could make important improvements over the status quo.

Policy. There is no sugar coating the shortcomings of Graham-Cassidy, but its most significant change to Obamacare is a new waiver system that would allow states to begin reasserting some of their traditional, pre-Obamacare role of regulating health insurance markets. In this way, Graham-Cassidy tries to seriously tackle Obamacare’s regulatory architecture. As Heritage Action explained in March:

“Obamacare’s beating heart was its regulatory structure: the benefit mandates, the one-size-fits-all community-rating rules, the limits on pricing structure and rules about where cost burdens must fall, and the federal review of decisions about insurance markets that can be handled perfectly well in the states. The goal, in the words of proponents like Sara Rosenbaum, was to restructure the insurance market by grafting onto it the ‘characteristics of a public utility.’ The law’s various other impositions on Americans — the coercive individual mandate, the taxpayer-financed subsidies necessary to help people purchase insurance far more expensive than they would otherwise desire, the massive tax increases — flow by necessity from this regulatory heart.”

Graham-Cassidy repeals the individual and employer mandates, and creates the aforementioned waiver system tied to massive block grants that effectively force the federal government to share the driver’s seat with the states. Specifically, Graham-Cassidy contains a modified version of the 1332 waiver reforms included in the Senate’s Better Care Reconciliation Act (BCRA) and a new waiver available to states tied to the new block grant mechanism, which is funded by the Obamacare taxes and savings from ending the Medicaid expansion. Taken together, these waivers are broad enough to allow states — should they feel compelled to act in the best interests of their citizens — to opt out of some of the most controversial and destructive Obamacare regulations. While shifting some regulatory responsibility to the states is preferable to Obamacare’s fully centralized structure, The Heritage Foundation cautions that “states are likely to spend the funding in ways that expand the number of people in government health care programs” that are “effectively government-controlled monopolies.” Heritage recommends the Senate amend Graham-Cassidy so states cannot use the new block grant funding to:

  1. expand Medicaid (though no more than 20 percent of a state’s grant can be used for that purpose),
  2. pay medical providers directly for providing services, and
  3. contract with managed-care plans to cover specified groups.

Process. According to reports, the Senate parliamentarian suggested that the fast track procedure Republicans hoped to use to repeal (and replace) Obamacare will expire after September 30, which is the end of the fiscal year. If accurate — and congressional Republicans are acting as such — it would give Senate Republicans just 10 days to use the reconciliation vehicle. At this point, it appears unlikely that the budget reconciliation bill could be used for anything other than Graham-Cassidy.

To be clear, hurdles still remain in advancing Graham-Cassidy. The Senate must have a budget score — typically provided by the Congressional Budget Office (CBO) — to review and score the bill, and the new legislative language must undergo parliamentary review to ensure it is compliant with the Senate’s onerous budgetary rules. The latter process is amusingly known as a ‘Byrd Bath’ because the main constraints surrounding the Senate’s consideration of a budget reconciliation measure stem from the Byrd Rule. As with the BCRA, it is likely the substance of Graham-Cassidy will change — perhaps significantly — during this process and it could substantially alter the policy analysis above.

Moreover, the House may not have an opportunity to amend Graham-Cassidy because any changes would require Senate approval. Those changes would require 60 Senate votes if, as has been reported, the privileged nature of the reconciliation bill expired after September 30. Finally, given that the FY18 reconciliation instructions are going to be designed for tax reform, it seems highly unlikely congressional Republicans will have another filibuster-proof vehicle to use until the FY19 budget cycle.

Politics. The politics of Obamacare are changing rapidly. From its inception in 2010 and through the 2016 election, the law remained unpopular with the American people. As Democrats and the media mounted an effort to save the law, Americans were left directionless by a Republican Party that promised repeal with no coherent vision for the future. As a result, opposition to Obamacare is hovering around 41 percent — the lowest disapproval rating at any point in the law’s lifetime.

Combined with multiple failed congressional efforts to unravel the law, many Republican lawmakers are actively seeking bipartisan repairs to the law. Although bipartisan efforts to improve and repair Obamacare are now on hold, it is likely they will reemerge if Republicans do not act to unravel Obamacare. The emergence of a bipartisan coalition committed to improving and repairing Obamacare will ensure the law ascends to the political equivalent of America’s other welfare and entitlement programs. A properly executed repeal effort in January would have eliminated this threat, but it is impossible to ignore that previous failures have shifted the political landscape in fundamental ways.

Allowing Obamacare’s regulatory architecture to remain firmly intact poses a serious threat to the long-term effort of enacting conservative health care reforms. Earlier this year, Heritage Action explained:

“[A]s harmful as Obamacare has been, its architects never had the opportunity to fully deploy the nearly unlimited regulatory apparatus at their disposal. Near-term political considerations and the disastrous performance of the exchanges forced the administration to scale back its ambitions. Indeed, the Obamacare statute vests so much power in federal regulators that it actually could have been worse.”

Tweaking Obamacare, as bipartisan working groups propose to do, is obviously insufficient. As Heritage Action cautioned earlier this year, Obamacare’s “elements are intertwined and inextricably linked, and so long as that [regulatory] heart beats, tweaks to the design of our insurance markets will only be able to help on the margins. The demand on the left to revive Obamacare — or something worse — will persist.” It should come as no surprise that in recent weeks the far-left wing of the Democrat Party flexed its muscle with the rollout of a national, single-payer health care scheme. Heritage Action warned of the left’s movement earlier this summer:

“Regardless of what happens [with the repeal effort], one thing is certain: Democrats will not stop in their quest for a nationalized, single-payer scheme. Conservatives cannot cede the playing field despite justified disappointment with the current process.”

In one very tangible sense, Graham-Cassidy has the potential to blunt the momentum for the left’s national march toward socialized medicine by restoring significant regulatory authority to the states themselves. When combined with significant sums of money, state governments may be reluctant to allow a national single-payer system to take resources from the state. To be clear, there is nothing inherently conservative in using massive sums of taxpayer money in the form of a new block grant — that amounts to a new entitlement to the state — but rather it is a political trade off that some conservatives find appealing given the left’s momentum.

Graham-Cassidy Should Expand Markets and Choice

A threshold question for conservatives is whether future legislative efforts to enact conservative health care reforms are best done from the baseline of Obamacare as it undergoes bipartisan tweaks, or a baseline in which Washington’s powers have been curtailed and states are allowed to innovate and experiment. Earlier this year, Heritage Action outlined the challenge with a federally concocted health insurance scheme:

“Conservative health policy is built on skepticism of these grand plans’ efficacy and with a different goal: to make markets freer and make insurance more consumer-driven. Achieving that goal is essential in the effort to rein in runaway health costs and limit Washington’s influence in Americans’ lives.”

In summarizing Graham-Cassidy, The Heritage Foundation concludes:

“If the Senate makes the recommended changes in the block grant program, Graham–Cassidy would provide an improvement over the status quo. However, without these changes, nothing would prevent states from simply expanding government health programs, which could result in transferring up to 8 million people from private coverage into government-run programs with no consumer choice.”

Repealing Obamacare’s regulatory architecture is essential for the future of pursuing conservative health care policy. And while clearly Graham-Cassidy does not repeal the regulatory structure, it does give states the ability to opt out of significant regulatory burdens and limit the influence Washington bureaucrats and technocrats have over the lives of the American people.

To ensure states do not use the new block grant funding to force individuals into restrictive, government-run health care programs, the Senate should remove three provisions of Graham-Cassidy that would permit states to use the funds to:

  1. pay medical providers directly for providing services to individuals;
  2. contract with managed care plans to provide coverage to specified groups of individuals; and
  3. expand Medicaid (no more than 20 percent of a state’s grant can be used for that purpose).

Make no mistake: If an amended version of Graham-Cassidy were to become law, there would still be an extraordinary amount of work ahead. States would have to innovate — rapidly — to begin restoring choice and competition in their health insurance markets. Conservatives would have battles to fight at the state level, as our Founders envisioned. Conservatives would continue to fight battles at the federal level as regulatory and statutory obstacles emerge from state innovation.

As Heritage concludes in its report, “Members of Congress should not be under any illusion that passing Graham–Cassidy relieves them of the burden of continuing to reform the health care system in a more patient-centered, market-based direction.”

 

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Claims and Responses: Chairman Bill Shuster’s 21st Century Aviation, Innovation, Reform, and Reauthorization (AIRR) Act (H.R. 2997)

At some point, the House could vote on the 21st Century Aviation Innovation, Reform, and Reauthorization (AIRR) Act (H.R. 2997), introduced by Chairman Bill Shuster (R-Pa.). The bill would turn the Air Traffic Control (ATC) system into a standalone government-sanctioned, non-profit corporation and reauthorize the Federal Aviation Administration (FAA) for fiscal years 2018-2023. While not perfect, the 21st Century AIRR Act represents a substantial improvement over American’s current aviation system that has fallen well behind our foreign counterparts due to excessive government regulation and a broken aviation finance system.

Below are some commonly made claims and straightforward conservative responses:

Fiscal

Claim: The Congressional Budget Office score shows H.R. 2997 will add $100 billion to the deficit.

Response: The CBO’s cost estimate is incomplete and inaccurate, and it is expected to issue an updated score within the next couple of weeks. A proper assessment of the bill’s fiscal impacts (assuming the American Air Navigation Services (AANS) Corporation’s revenues stay on-budget, a decision with which the OMB disagrees) would yield a deficit increase of $1.5 billion to $5 billion over the next 10 years. This increase is only due to the corporation’s new ability to borrow, which shifts capital spending into the 10 year budget window but does not meaningfully change long-term capital outlays.

Claim: ATC corporatization is a bad deal for taxpayers because it gives away the nation’s ATC infrastructure for free.

Response: The nation’s ATC system has been paid for almost exclusively by excise taxes on users of the aviation system (primarily commercial passengers). Because the new the non-profit corporation would be funded exclusively by aviation user fees, requiring the non-profit to pay for the system upfront would simply result in double-charging aviation users for a system that they have already paid for. This would amount to a huge, unnecessary financial burden on fliers that would likely increase federal spending elsewhere in the government as Congress scrambles to spend the revenues generated by the “sale.”

Claim: Moving Air Traffic Control out of the government will lead to federal bailouts in the future.

Response: The argument that a future Congress may make the decision to bail out a non-governmental entity is essentially an argument against private enterprise. While Congress has repeatedly made misguided decisions to bail out various private industries (many of which were never government-owned), the unavoidable reality is that lawmakers are not legally allowed to bind a future Congress. Indeed, the question is whether conservatives would prefer to create a business with the off-chance of it receiving future taxpayer assistance (which they would be right to oppose), or continue with one that is permanently shackled to the taxpayer.

If bailouts are a true concern, maintaining government responsibility for an infrastructure asset does not reduce the likelihood of a general fund bailout whatsoever. The most instructive example is the federal Highway Trust Fund, which was designed as a user-funded mechanism for highway construction and maintenance. Since 2008, Congress has bailed out the Trust Fund with more than $140 billion in general revenue, in blatant violation of the 1974 Budget Act (which requires the fund to be at least 90 percent self-sufficient). Other examples of federal bailouts of supposedly dedicated funding streams — even those that violate the law and Congressional rules — abound.

In the case of air traffic control, the example of the UK’s privatized ATC system, UK NATS, is misguidedly pointed to as proof that a bailout is inevitable. While UK NATS did require a bailout in the early 2000s, this was the result of an unprecedented decrease in aviation activity following 9/11 (which also prompted the U.S. government to bail out its private domestic air carriers). Since then, corporatized ATC providers have taken the necessary precaution of establishing reserve funds to weather recessions and other drops in aviation demand. The AANS corporation will be authorized to do the same, and given the ample amount of current aviation revenues, will likely be able to amass such a contingency fund with ease.

Claim: The bill is a giveaway to labor unions and will allow current Air Traffic Organization (ATO) employees to retain their federal benefits.

Response: This iteration of ATC reform is a substantial improvement over last year’s version in regards to labor provisions. H.R. 2997 explicitly lays out harsh penalties — termination of employment and union decertification — in the case employees participate in a strike, work stoppage or slowdown (Sec. 91109). Furthermore, the bill requires speedy resolution of labor disputes (Sec. 91107) and prohibits supervisors from joining a union (Sec. 91104).

While the Heritage Foundation generally favors aggressive labor reforms — including Right-to-Work designation and a stronger shift to the provision of private compensation and pensions — the modest labor reforms included in the bill are improvements over last year. When those reforms are combined with the fundamental changes to the nation’s ATC system, it would be a significant improvement. In order to retain the current generation of Air Traffic Controllers (a large portion of whom could retire, yielding potentially crippling effects on the nation’s aviation system), the bill allows ATO employees the option of keeping the benefits promised by their current employer, the federal government. If members have an issue with current federal personnel compensation practices, they should address those issues through the normal legislative avenues.

In regards to future federal liabilities, the bill would reduce the federal government’s payroll, pension and benefit liabilities by moving the subsequent generations of air traffic controllers out of the government and onto private payrolls. These ATC workers would have otherwise been federal employees, and thus the shift constitutes a large transfer of long-term retirement and benefit responsibility away from taxpayers and onto the private sector. Indeed, in the near term, we can expect the institutional change to prompt some employees to retire earlier than they otherwise would have, which will reduce long-term benefit payments to these workers.

Claim: The bill removes federal oversight of ATC spending.

Response: The negative effects of the politically motivated budget cycle and bureaucratic, risk averse procurement process are prime reasons to move ATC out of the government into the private sector. Despite multiple attempts to reform the procurement process in the 1990s, the FAA still lags behind its foreign counterparts in developing and adopting technology upgrades. Recent reports from the DOT Inspector General confirm that the FAA has trouble accurately projecting the costs and benefits of its modernization programs and note that the FAA’s attempts to improve its procurement and acquisition processes have “not achieved the expected cost and productivity outcomes.” Continuing the current political and bureaucratic micromanagement of air traffic control—even through implementing further reforms—will only perpetuate the FAA’s flawed procedures. Sufficient oversight will be applied to the corporation’s ATC spending primarily through its own governing board (two seats of which will be held by federal appointees), as well as the Secretary of Transportation and continued regulation by the FAA.

General Aviation

Claim: Corporatizing ATC will limit service and increase costs for rural users.

Response: H.R. 2997 not only exempts General Aviation users from charges (see below), but also prohibits the corporation from engaging in economic discrimination, requiring it to serve all users regardless of their location or fee-exempt status (Sec. 90701). (However, the case can be made that instituting user-fees for General Aviation aircraft would increase the economic incentive for the Corporation to provide such areas service, thus further strengthening the guarantee of service. However, the General Aviation lobby has steadfastly resisted the implementation of any user fees whatsoever.)

Furthermore, the bill instructs the Secretary of Transportation to ensure that proposed changes do not negatively affect access to rural airports (Sec. 90702). In fact, there is reason to expect corporatization to benefit rural users by reducing the cost of ATC services through expanding the contracting of tower services (currently suspended by the FAA) and implementing digital remote towers (a cost-reducing practice employed in other countries, but not by the FAA).  

Claim: Corporatizing ATC puts the major airlines in control.

Response: The AANS Corporation will be governed by a 13 member board of user-stakeholders. The composition of the board is detailed below:

As the legislation clearly outlines, the major airlines will control only one of the 13 board seats, while regional air carriers (who service smaller and rural airports) will hold one other seat. This hardly amounts to a controlling share of the board. Even if the airlines managed to align a majority coalition of board members on an issue, such as raising fees, the new fee structure is still subject to public review and approval by the Secretary of Transportation, who must consider whether the fees “adversely impact the ability of the user to use or access any part of the national airspace system” (Sec. 90313(d)(1)(B)), providing another (arguably excessive) level of oversight. Furthermore, any fees deemed discriminatory are subject to challenge in court.   

Claim: The bill will result in future fees for General Aviation.

Response: Because the current tax regime results in considerable subsidies for General Aviation ATC usage and airport infrastructure, the Heritage Foundation has proposed free-market changes to reduce the subsidies that flow from everyday travelers to those that own their own private aircraft. However, to appease General Aviation interests, H.R. 2997 specifically exempts General Aviation aircraft from ATC user-charges in Section 90313(d)(7), thus implementing a prohibitive price control, maintaining extant subsidies, and rejecting common international practice. Because this exemption is subject to the periodic review by Congress through the authorization process, members voice concerns that a future Congress may remove this statutory protection. Because legislation cannot bind a future Congress, the only solution would be to amend the Constitution to exempt a business from charging General Aviation aircraft for the services it provides — an exceptionally poor idea on procedural, constitutional and policy grounds.

Even if a future Congress were to remove the statutory exemption, any change to the corporation’s fee structure would still have to go through the normal approval process, which requires approval by the corporation’s board (on which General Aviation elects two representatives) as well as the Secretary of Transportation, ensuring checks on the prospect of a fee increase. As the experience in Canada has shown, user charges for single propeller aircraft amount to just $70 per year, while business jets are charged on a distance-weight basis, the international norm (with the exception of the U.S.). Concern that such fees have a slight chance of being implemented in the future does not justify the opposition to much needed changes to the nation’s ATC system.

Claim: Rural and General Aviation airports will lose their federal funding.

Response: While localizing the responsibility for airport funding is a free-market policy supported by the Heritage Foundation, H.R. 2997 increases rural airport funding in the Airport Improvement Program and Essential Air Service program without major programmatic changes.

Claim: Corporatizing ATC has devastated General Aviation pilots in Canada.

Response: This is a falsehood perpetuated by the GA lobby in the U.S. Bernard Gervais, the president of the Canadian Owners and Pilots Association (the Canadian counterpart to AOPA, which opposes the legislation), has written that GA is thriving in Canada, that his 15,000 pilot-members “are largely satisfied with the service we receive from Nav Canada,” and requested that AOPA “stop using Canada as your example.” In reference to the false claim that Canada’s GA user-charges (common in every country except the US) have negatively affected GA, he responded: “Things are working out pretty good. Would anyone go back to a government-run system? No.”

National Security

Claim: The bill will give away the national airspace to a private company, limiting interoperability with military controllers and jeopardizing national security in times of war.

Response: H.R. 2997 retains federal ownership of the national airspace; it simply restores the authority to conduct civilian air traffic control operations to a private, non-profit enterprise. In the event of an existential security threat, the president can transfer authority over air traffic operations to the Department of Defense (Sec. 225 and Sec. 90906). The FAA’s regulatory/safety arm will continue to set air traffic control procedures and training standards for both military and civilian air traffic controllers. The military’s 8,000 air traffic controllers will continue to train and operate alongside civilian air traffic controllers. The only difference will be that civilian controllers will not be FAA employees; they will be employees of a non-profit corporation.

Cooperation between civilian and military ATC operators has not been a major issue for any U.S. allies that have removed their civilian ATC operator from the government, including Canada, the U.K., Australia, and New Zealand. Indeed, the joint U.S.-Canada North American Aerospace Defense Command (NORAD) is fully integrated with Canada’s private provider of air traffic control. While structural changes inevitably stir up objections from individual bureaucrats who are accustomed to the status quo, these considerations have resulted in the support of Secretary of Defense Mattis for ATC corporatization.

Claim: Corporatizing ATC could hand over U.S. airspace to foreign powers or terrorists.

Response: Again, H.R. 2997 maintains federal ownership of the national airspace. All board members of the AANS Corporation will be required to be U.S. citizens, and the bill establishes a process to ensure that current government screening of employees for suitability, security and medical concerns remains in place. U.S. citizenship will remain a requirement for positions that require a security clearance. Furthermore, it is likely language regarding the primacy of security screening could be made more explicit through a member-driven process.

It is worth noting that the FAA currently employs many foreign-born workers through its contract tower program and the DOD employs some 35,000 non-citizens. There is absolutely no reason to expect ATC corporatization to increase security threats to the national airspace.

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