Paul L. Caron

Thursday, June 30, 2011

Obama Excoriates Republicans for Corporate Jet 'Tax Loophole'

Two years ago, President Obama's stimulus package extended the 2008 bonus depreciation rules, which allowed for more accelerated depreciation for capital goods, including corporate jets. (Jet-makers Cessna and Gulfstream have manufacturing facilties in 12 American cities.) At yesterday's press conference, the President excoriated Republicans six times for opposing the elimination of this "tax loophole" (which press reports say would raise a relatively insignificant $3 billion over ten years).

The tax cuts I’m proposing we get rid of are tax breaks for millionaires and billionaires; tax breaks for oil companies and hedge fund managers and corporate jet owners. ...

It would be nice if we could keep every tax break there is, but we’ve got to make some tough choices here if we want to reduce our deficit.  And if we choose to keep those tax breaks for millionaires and billionaires, if we choose to keep a tax break for corporate jet owners, if we choose to keep tax breaks for oil and gas companies that are making hundreds of billions of dollars, then that means we’ve got to cut some kids off from getting a college scholarship. ...

And before we ask our seniors to pay more for health care, before we cut our children’s education, before we sacrifice our commitment to the research and innovation that will help create more jobs in the economy, I think it’s only fair to ask an oil company or a corporate jet owner that has done so well to give up a tax break that no other business enjoys. ...

So the question is, if everybody else is willing to take on their sacred cows and do tough things in order to achieve the goal of real deficit reduction, then I think it would be hard for the Republicans to stand there and say that the tax break for corporate jets is sufficiently important that we’re not willing to come to the table and get a deal done. ...

 If you are a wealthy CEO or a health -- hedge fund manager in America right now, your taxes are lower than they have ever been.  They’re lower than they’ve been since the 1950s.  And you can afford it.  You’ll still be able to ride on your corporate jet; you’re just going to have to pay a little more. ...

I’ve said to some of the Republican leaders, you go talk to your constituents, the Republican constituents, and ask them are they willing to compromise their kids’ safety so that some corporate jet owner continues to get a tax break.  And I’m pretty sure what the answer would be.

As one commentator put it, "President Obama Was For Tax Breaks on Corporate Jets Before He Was Against Them."

Update: Think Progress reports that President Obama was not referring to the inclusion of corporate jets in the bonus depreciation rules, but instead to the 1987 shortening of the depreciation period for corporate jets from seven years to five years:

[S]ome folks are putting out a new myth that the tax subsidy in question was created by the American Recovery and Reinvestment Act.

The truth is that, much as you would expect, the White House negotiating team isn’t nearly that stupid. The source of the confusion is that congress passed a “bonus depreciation” law in 2008 as an economic stimulus measure, and ARRA continued it. This depreciation is a broad (albeit temporary) provision that includes to a wide range of capital goods including both commercial and corporate aircraft. By contrast, the tax break at issue in the negotiations is a 1987 provision of the tax code that allows corporate jets to be depreciated over a five-year period rather than the seven-year period required for commercial aviation. This is not something Barack Obama created, not something Barack Obama has ever supported, and not anything that has anything to do with the stimulus bill. It is, instead, a small but real subsidy that distorts the economy at the margin by encouraging large firms to invest in corporate jets rather than paying for commercial airfare.

See also National Journal: Obama’s Taxing Corporate Jet Policy:

While critics charge the president with flip-flopping, the story is more complicated. Obama included the tax break, called “accelerated depreciation,” in the 2009 economic-stimulus law to lower the cost of capital investments—including aircraft purchases—for millions of companies. Today, the administration is targeting a tax disparity dating back to 1987 that specifically favors business planes over commercial airliners.

“Nine months ago, this president extolled the virtues of shortening depreciation schedules to stimulate jobs,” National Business Aviation Association President and CEO Ed Bolen said in a statement. “Now he seems to want to reverse course and push ahead with punitive treatment for general aviation, an industry that creates jobs, helps companies succeed, and serves communities all around America."

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WTF ...? Loophole equals "ordinary and necessary" business expense next ...?

Although it has been a while since I've worked as a CPA, last I knew, there are two kinds of differences: permanent and temporary. An example of a permanent difference is the disallowance of 50% of Meals and Entertainment expense (M&E); the difference between tax depreciation expense (per IRS schedules) and GAAP depreciation expense is temporary since eventually book value of the asset should converge at a single value.

The benefit to the federal government as concerns tax revenue is greater in permanent differences (as the business expense will never offset taxable income); the benefit/detriment to the federal treasury as concerns temporary differences is the time value of money (whether a deduction is accelerated, as with bonus depreciation/Sec 179 expense, or the deduction is deferred).

The demagoging going on with respect to tax issues is simply unbelievable ....

Posted by: 'Chop | Jul 12, 2011 8:15:36 PM

I had been wondering what the 'corporate jet' thing was all about ... then I heard a radio interview on 5 Jul 2011 of Rep James E Clyburn (D-GA), third-ranking Dem in the House stating that Rep. Eric Cantor walked away from the table after the tenth of eleven meetings when the question arose "do you consider closing tax loopholes for people who get all kinds of tax breaks for sending jobs overseas--if you're going to stop depreciation for CEO corporate jets that now get seven-years depreciation, bring that to make it the same thing as people have at Delta, US Air or other commercial airlines, they only get five-year depreciation? But, if you're a corporate jet owner you get seven-years for depreciation. That's the kind of stuff this broke down over, and the American people need to know that."

See: (at between 6:00 and 7:15).

I wondered what he was talking about ... but, now it seems obvious that he just got the depreciation lives reversed (kind of makes a difference). He then goes on a rant about how deficits (and the accumulated debt) is the fault of the Bush administration for putting the cost of war 'on a credit card' and the prescription drug benefit was not paid for ... never mind that entitlement spending (and interest on the debt) out-paces all discretionary spending by more than two-to-one ...!

One of the remarks he makes--and I quote--"... [W]e ought to sit down like adults and work this out. ... we have got to really get serious about protecting everybody's interest as we move forward. And I have always had a real problem with people who take the attitude that 'I know what's best and nobody else [has] got any real thought worth considering.'"

Well, when you have a complete and utter lack of understanding of the issues, then I do not believe you have "got any real thought worth considering."

I find it very distressing that such uninformed individuals are representing the American people ... Rep Clyburn seems to have no concern that the unfunded liabilities of Medicare alone are in excess of $60 Trillion (many times the monetized debt of the federal government)!

It seems painfully obvious that the whole corporate jet issue is emblematic ... a smokescreen to create a wedge issue and stir up class warfare ...

Posted by: 'Chop | Jul 12, 2011 8:00:52 PM

Next, Obama will want to disallow hotel expenses for "millionaires and billionaires" that exceed the rates of Motel 6.

Posted by: Woody | Jul 1, 2011 1:30:09 PM

Uh, reality check. The DEMOCRATS controlled Congress - you know, the place where tax laws originate in 2009. AND the DEMOCRATS controllef Congress - once again, the place where tax laws originate - in 1987. In short, he wants to blame Republicans of today for something DEMOCRATS did, way back when. Obozo must believe that everyone is as ignorant of history, as he is.

Posted by: Mike Giles | Jul 1, 2011 7:10:34 AM

Just another way to perpetuate class warefare, or if you prefer cultural Marxism. It's not about tax cuts or balancing the budget, it's about wealth redistribution.

Posted by: Tom Hager | Jul 1, 2011 6:24:07 AM

"It is, instead, a small but real subsidy that distorts the economy at the margin by encouraging large firms to invest in corporate jets rather than paying for commercial airfare."

So, is a hidden part of the agenda here that the people using corporate jets also get to bypass being groped by TSA?

And of course, no mention of the endless free and insanely expensive jets that Obama and his wife and dog all use with great regularity. If commercial travel is so great, then they should switch over as well -- or at least pay for their own travel, as private jet owners do.

Posted by: Ace | Jun 30, 2011 7:24:05 PM

As usual, Obama has to be followed by his minions and sycophants telling us, "Ahhh, what the President meant to say was ..."

The Great Communicator, he ain't.

Posted by: tom swift | Jun 30, 2011 3:49:24 PM

Hey, give the guy a break. After all, didn't he "outsource" to Pelosi and Reid the job of coming up with the stimulus plan?

Of course, if Obama was smart, he wouldn't be running his big mouth about the details of something he had little involvement in.

Posted by: Blacque Jacques Shellacque | Jun 30, 2011 12:21:25 PM

cthulu and Tom Hynes -

I agree with you both and I've made this point on a couple of other blogs. My guess is that Obama doesn't understand this. He probably has no idea how depreciation affects the timing (but not the magnitude) of taxes. As far as I know, he's never worked in a taxable enterprise. Scary...

Posted by: Jan | Jun 30, 2011 11:35:19 AM

Cash for Clunkers - 3 billion?

Ummm, aren't the workers who build these planes union?

Don't they have children in school?

Posted by: Sandy P. | Jun 30, 2011 11:18:37 AM

Where to start:

If he wants to kill some jobs make corporate jets a non-tax deductible expense. Why not just destroy the evil small jet market - only rich people like Al Gore use them anyway.

Next time he goes to a big manufacturing company someone should show him the cash flow for a large purchase like that. He's obviously never managed cash flow in an organization that has any capital expense.

Of course as noted above the tax break is just a change in when the tax is due.

If he wanted to really create investment in America he would make all capital expenses deductible in the first year. Watch reinvestment in the US skyrocket. The ripple effect of capital expenditures and related jobs would be great.

Posted by: Steve Adams | Jun 30, 2011 10:47:51 AM

@TomHynes -- to expand on this, there is no increase or decrease in tax from extending or shortening depreciation schedules so long as the rates remain constant. The entire cost of a commercial or corporate jet will still be deducted by the end of the longer life.

So the only way that the government can say there is a "tax break" of $3B is to pick some arbitrary period to measure it and make arbitrary predictions about the flow of transactions subject to the tax. If all jets were purchased in year 1, there'd be no "tax break" after year 7. If you measured just year 6, corporate jets would be disadvantaged because they'd have no depreciation in that year. If you picked year 4, the depreciation for the corporate jet would be higher. Any "tax break" measured over 10 years likely has a substantial number of purchases forecast in the last five years of the decade, and would likely disappear after 12 (and must, mathematically, disappear after 17).

Posted by: cthulhu | Jun 30, 2011 10:20:24 AM

"It is, instead, a small but real subsidy that distorts the economy at the margin by encouraging large firms to invest in corporate jets rather than paying for commercial airfare."

In other words it is a stimulus that actually works. It promotes the manufacture and sale of corporate jets to such a degree it earned recognition from the president of the United States in a major speech.

Posted by: willis | Jun 30, 2011 9:53:15 AM

Pretty rich coming from a guy the flies around in the ultimate corporate jet. let sell AF1 and let Obozo travel by bus. Let him set the example.

Posted by: cubanbob | Jun 30, 2011 9:26:28 AM


1987? Seriously? I'm supposed to believe that Obama is excoriating Republicans for a vote that happened in 1987? What is next? Obama excoriating Republicans for a vote in 1860?

Posted by: memomachine | Jun 30, 2011 9:09:54 AM

This excoriation of the Republicans shows the President and his advisors are either stupid or duplicitous. Stupid if they forgot this was in their tax package. Duplicitous if they are willing to ignore their past position purely to attack the political opposition. To make it even more egregious, it is a very minor revenue issue; it is just more of this administration's attack on "big business," whatever that is.

Posted by: TexEcon | Jun 30, 2011 8:37:55 AM

The repubs should listen to Sen Coburn, and get behind eliminating these special interest tax subsidies. If they want to keep it revenue neutral, then add an amendment to use a repeal of the subsidies to pay for an extension of the Bush tax cuts. That will change the argument from keeping the subsidies, which nobody should want, to what to do with the money you get from repealing them. But even if the revenue neutral amendment fails, they should still not oppose repeal of the tax subsidies. Repeal of these subsidies are not the same as regular tax hikes, since the subsidies are a form of special interest crony capitalism. By not supporting repeal of these tax subsidies, they just play into the perception that repubs favor big business fatcats.

Posted by: richard40 | Jun 30, 2011 8:35:12 AM

lets see 1.6 trillion deficit this year = $4.38 billion per day

rich guy jet tax break = $.3 billion per year

$.3 billion = 1.64 hours of Obama's deficit spending

yeah, thats a serious man talking about serious issues that will help fix the problem ... between the start of his press conference/strawman stump speech and an hour after his press conference ended he would have already spent this years take from the corporate fat cats ...

Posted by: Jeff | Jun 30, 2011 8:16:47 AM

3 billion/10 years...300 million.
with a 1.7 trillion dollar deficit, obama has just shaved .018% of the mountain.

heck, let's give him the 4 billion in 'tax breaks' for 'big oil':

.25% of the way there. just 99.75% left to go.
he might need more than another term.

Posted by: mark l. | Jun 30, 2011 8:14:03 AM

Lengthening a depreciation schedule doesn't really raise tax money, it just brings it in sooner.

Posted by: TomHynes | Jun 30, 2011 8:10:09 AM

There are a lot of "tax loopholes" which, on their own, raise a relatively insignificant amount. But when all of those "tax loopholes" are all put together, it's a significant amount!

Posted by: Andy | Jun 30, 2011 8:04:35 AM