September 21, 2001

September 21, 2001 | WebMemo on Federal Budget

Is a Cash Handout Really the Best

While the terrorist strikes of September 11th were aimed at what many view as symbols of American wealth and power, the damage they caused is rippling through the American economy in ways that are ominously substantive. When financial markets reopened after the longest shutdown since the depression, investors witnessed unprecedented declines in all major indices.

Congress and the administration are working to contain the situation and bolster ailing sectors of the economy. The airline industry, which has lost billions in a matter of days and is burdened with spiraling new costs for future operations, is at the center of this debate.

The challenge lawmakers face as they search for solutions is to resist the temptation of simply giving the airlines a blank check. No one denies that the strength of the airlines is vital to future economic rebuilding, but it is important to assess the problem and plan accordingly.

Instead of the $5 billion cash bailout being discussed by Congress and President -- which will largely benefit airline shareholders and creditors, the federal government could, as an alternative, immediately buy $5 billion of advanced purchase airline tickets for use in all future federal business travel. In effect, it's a prepaid credit card to be drawn down as civil servants travel on business.

Airlines get the cash they need, taxpayers get an equivalent offsetting asset, and no unhealthy corporate welfare precedent is set. Already, Amtrak is arguing that it needs a $3 billion bailout, even though it suffered no damage and has, in fact benefited, from an increase in passengers because of the airline shutdown and lingering fears of another attack. More such pleas will surely follow if one industry succeeds.

For more information, or to speak with Heritage expert Ronald Utt, contact Joe Dougherty at 202-608-6143.

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