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>Passport for domestic flights

And now the airlines will get even less money

Except the headline is wrong. TSA is, as a consequence of the REAL ID Act, going to require REAL ID compliant IDs in 2018. These are predominantly state issued identification cards (typically a drivers license). Passports are an alternate, valid ID.

How does it work for foreigners (aka "aliens" - what a weird term) living here?

Permanent resident cards, foreign passports, and many other documents are accepted in addition to Real IDs: https://www.tsa.gov/travel/security-screening/identification

Note that this use is the original meaning of "alien." The contemporary meaning of "extraterrestrial" is a recent mutation of it.

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