Dedicating Aircraft Property Taxes to the State Aviation Fund

H.4577 would require that all revenue from aircraft property taxes paid by airline companies be credited to the State Aviation Fund. Under current law annual revenues from these taxes under $5 million are credited to the General Fund, revenues between $5 and $10 million are credited to the State Aviation Fund, and revenues in excess of $10 million are divided evenly between the two funds.

On its face, dedicating aircraft property taxes to the state aviation fund seems to make sense. However, this surface analysis ignores the detrimental effects of dedicated tax revenues. Studies have found that dedicated revenues result in an increase in total government size, while having little to no effect on the expenditures of the program to which they’re connected. It’s not hard to understand why this might be the case. Dedicating revenue deprives money from the general fund, and as lawmakers are typically reluctant to cut general expenditures they will often increasing borrowing or taxation to make up the difference in revenue. At the same time the program receiving the dedicated revenue doesn’t see an increase in funding because lawmakers simply shift out other funding sources from the program as the dedicated revenues start to come in.

As far back as 2005 South Carolina dedicated 16 percent of state tax revenue. Lawmakers should aim at reducing not increasing the number of dedicated revenue sources.

(Related S.954)

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