Will Taxing Foreign Visitors Promote Tourism?

President Obama is taking a break today from promoting a more federalized health-care system to sign a bill creating a federalized tourist promotion campaign.

In a closed ceremony at the White House, the president signed the Travel Promotion Act. After gaining final passage by the Senate last week, the bill will raise an estimated $200 million a year by imposing a $10 tax on visitors to the United States from countries where they are not required to obtain a visa. The revenue will be used to create and fund a new agency, the Corporation for Travel Promotion, that would work with the U.S. tourism industry to promote the United States as a global travel destination.

I’m all for promoting tourism to the United States. Tourism is an important “service export” that generates more than $100 billion a year in earnings from foreign travelers to the United States. But a new federal agency and a new tax on travel are not the right way to drum up more tourism business.

First, just on principle, promoting a particular industry should be the business of that industry, not the business of government. Americans also export billions of dollars worth of farm goods, semiconductors, machinery, aircraft, pharmaceuticals, and chemicals, along with financial, education, insurance, and other services. None of those industries deserves their own tax-financed promotion board either. If the payoff from promotion is so huge, the industry should be willing to bear its cost without the aid of the government.

More practically, it goes against basic economic logic to promote tourism to the United States by imposing new costs on tourists. Granted, $10 is not a large amount, but the demand curve for tourism is downward sloping - as it is in every other market. A higher price will lead to less demand, not more. As a spokesman for the International Air Transport Association told ABC News:

It’s absolutely counterintuitive. To us, we’re saying we’d love to see more people visit the United States, but we’re going to charge you more for the privilege of entering the country. We are in favor of increased tourism and visitation… but let’s look at our priorities. We don’t think that videos and billboards are necessarily a priority. Instead, we should be focusing on how to make customs and immigration easier for people.

As I argued in a previous post, the U.S. government should be doing more to keep dangerous people off  flights to the United States instead of making it even more difficult for perfectly harmless tourists and business travelers to get on those same flights.