Thursday, June 30, 2011

President Obama and the Corporate Jets

In his first full press conference in three months, President Obama listed tax breaks for corporate jets as an unacceptable tax give-away for the rich. To make sure he got his message across, he mentioned them five more times. The current Democratic leadership hated corporate jets. The first time the CEOs of GM and Chrysler came to Washington for a bail-out they were turned away, partly because they used corporate jets.

So what is this horrible tax loophole? It is something called accelerated depreciation. When a corporation buys a piece of equipment it can deduct the cost from its taxable earnings but it has to spread the deduction across the equipment's expected lifespan. This is called depreciation. Accelerated depreciation means that a corporation can take a larger deduction up front making the equipment cheaper to buy, at least for the short-term.

The deduction was passed in order to make buying jets more attractive. The figuring was that this would give a boost to the corporate jet makers who are mainly domestic.

So, where did this deduction come from? Is it part of the hated Bush Tax Cuts For The Rich?

No. It was part of the stimulus which was passed by the Democrats and signed into law by President Obama.

Why is the President trash-talking his own deduction? Because it makes a convenient sound-bite.

The movement to repeal this tax break reminds me a little of the George H. W. Bush yacht tax. In an effort to reduce the deficit, Congress passed and Bush signed a luxury tax on yachts. The idea was that these are rich men's toys and billionaires can afford to pay a bit more to own them.

That isn't how it worked out. It turns out that most boat sales are to middle-class boat-lovers. These people save up a down payment and finance the rest. The tax doubled the down payment which either made the buyers switch to a cheaper boat or give up completely. The boat-making industry was hit hard and the tax ended up costing much more in lost income tax than it raised.

If the corporate jet deduction is actually effective then repealing it will hurt the domestic jet industry.

But that's ok because they are making toys for the rich.

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