Hiking Taxes on Corporate Jets: Obama’s Version of Waste, Fraud, and Abuse
President Obama’s proposal to raise taxes on corporate jets is the Democratic version of “waste, fraud and abuse”—a political attack on a target of opportunity that has little significance in the real world.
Just as pols have long implied that reducing government waste or cutting foreign aid can result in big budget savings, so now the White House is doing the same with a handful of tax breaks for the rich.
Obama can do the math—he understands his corporate jet proposal would only trivially reduce the deficit. But the president wants to put the GOP on the defensive for its absolutist opposition to any tax increases. So, he claims, Republicans are willing to jeopardize the credit of the United States in order to protect, as he so dramatically puts it, “millionaires and billionaires.” And I thought he was talking about the NBA lockout.
It isn’t clear exactly what tax subsidy Obama is talking about, though he appears to be going after a 1987 law that allows corporate jets to be depreciated over 5 years rather than the 7 years required for commercial aircraft. According to a 2007 revenue estimate, this would shave about $3 billion off the deficit over a decade, or roughly $300 million-a-year. You’ll recall that this year’s deficit is likely to be about $1.4 trillion.
Understanding this proposal is even more difficult thanks to a 2010 law that allows companies to accelerate their depreciation write-offs for equipment purchased in 2010 and 2011. I guess Obama is assuming this “bonus depreciation” measure will expire as scheduled at the end of this year. I wonder what the over/under is on that.
If, as part of deficit-cutting tax reform, Obama wants to take on the arbitrary and often-irrational system of business depreciation, I’m with him. Making tax write-offs square with the real decline in the economic value of plant and equipment is a great idea. Btw, by this standard, even 7 year depreciation is extremely generous for corporate jets, whose real useful lives exceed 20 years.
An even better idea may be to permanently allow companies to expense (or write-off the full cost) of plant and equipment in the year it is acquired–as long as firms can no longer also deduct interest costs. This is, in fact, a key element of a consumption tax.
But Obama is not proposing a wholesale reform of business depreciation. Instead, he is targeting one small tax break that nicely conjures images of fat-cat corporate execs but misses the real point.
I get that Democrats want to force Republicans to violate their no tax-pledge. Their theory seems to be that if Rs break their vow just a teensy bit now they’ll be more willing to sign on to major revenue-raisers later. This doesn’t actually make any sense to me but, what do I know? I only write a tax blog.
So the grotesque dance continues. The entirely artificial debt limit crisis, created by politicians to gain electoral advantage, grinds on. While the rest of us await serious proposals to address the deficit, we instead get to listen to never-ending, but ultimately meaningless, base-pleasing rhetoric—of which Obama’s corporate jet gambit is just the latest.
[...] won’t be painless. Despite our stereotype of massive corporations receiving huge breaks – see Obama’s latest rhetorical target, accelerated depreciation for corporate jets – only 10% of the revenue lost to tax expenditures benefits corporations. The other 90% of breaks [...]
That this is even under discussion by the administration creates a level of idiocy unmatched in the modern era.
See here
http://dismalpoliticaleconomist.blogspot.com/2011/07/taxes-and-corporate-jets-deficit.html
This is not about Republicans getting there feet wet, but embarrassing them into a deal that bargains away their leverage. This is the last point they really have to make a case for no tax increases. Once the expiration of the Bush/Obama tax cuts nears, their ability to avoid compromise is gone. The sad fact is that they most likely care more about the $1 Trillion over the next ten years for wealthiest rather than the $3 Trillion over the same period for the lower brackets.
The corporate jet example is simply being used to goad the GOP.
Thanks for pointing out the obvious. Claiming outrage over the depreciation rules for corporate jets is great class warfare stuff, but has very little to do with the national debt. And, it’s particularly distasteful after President Obama himself championed even more generous depreciation write-offs for assets, including corporate jets, in two recent stimulus bills. In this respect, however, Gleckman (again) has his facts wrong. He wrote:
“Understanding this proposal is even more difficult thanks to a 2010 law that allows companies to accelerate their depreciation write-offs for equipment purchased in 2010 and 2011. I guess Obama is assuming this “bonus depreciation” measure will expire as scheduled at the end of this year. I wonder what the over/under is on that.”
Make that two laws in 2010. First, on September 27, 2010, President Obama signed into law H.R. 5297, the Small Business Jobs and Credit Act of 2010. That law enabled bonus depreciation for corporate jets (other than those not used predominately in business) among many other business assets. It enabled 50 percent of the cost of an asset purchased in 2011 to be written down in the first year. If that were not enough, he signed a second bill, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, extending those benefits of the first bill even further. That later law upped the write-off to 100 percent in 2011 and extended the 50 percent write off from the September bill through 2012 (and, exceptionally, the period of benefits for long-lived and certain transportation property were extended to 2013 and this would appear to include many corporate jets—that’s a highly technical point, but one that should be within the ken of TaxVox). So, bonus depreciation does not expire at the end of 2011 as Gleckman states—it is 2012 at the earliest for the 50 percent bonus many and 2013 at the latest for corporate jets. Here’s what the White House web site proudly declared about the 100 percent expensing provision:
“100 Percent Expensing: The agreement includes the President’s proposal to temporarily allow businesses to expense 100% of their investments in 2011, potentially generating more than $50 billion in additional investment in 2011, which will fuel job creation.”
http://www.whitehouse.gov/taxcut
Talk about mixed signals from someone who travels on perhaps the most expensive corporate jet in the world.