Corporate jet loophole: The president fights against the president

The words “corporate jets” came up again in President Barack Obama’s news conference today.

“What we have talked about is that starting in 2013, that we have gotten rid of some of these egregious loopholes that are benefiting corporate jet owners or oil companies at a time where they’re making billions of dollars of profits,” he said.

It’s a recent conversion for the president, who has identified corporate jet travel as something for fat cats. How did these fat cats get the break? President Obama gave it to them.

He signed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. Among its components was the ability of corporations to depreciate the cost of a corporate jet 100% in the year it is purchased, rather than over five years. The net effect is about a 40% reduction in cost.

Now, the president refers to this as a “tax loophole.”

The beneficiaries of the loophole are corporate jet manufacturers Gulfstream (about 7,000 are employed in Georgia) and Cessna (which has made Wichita a company town).

Their trade group is fighting a perception problem, reports the Atlanta Journal Constitution:

The industry argues that it does not necessarily conform to a “fat cat” generalization. Most business flights carry midlevel staffers rather than chief executives, and many fly into airports without commercial airline access. One of the more common purchases is the Cessna Citation Sovereign, priced at roughly $17.5 million.

“People would be very surprised if they knew how many small-turbine and piston powered aircraft are used by businesses every day all across America,” said Steve Champness, president of the Atlanta Aero Club. “Corporate aircraft give American businesses an advantage over the rest of the world.”

The companies, however, seem to acknowledge that they can’t prove a link between the accelerated depreciation and the number of jobs in the industry, a fact which also might undermine the notion that tax breaks are linked to jobs at all.

Mark Schmitt, senior fellow at the Roosevelt Institute, writes in the New Republic that the “corporate jet” focus sends the wrong message when it comes to taxes:

Call it economic populism on the cheap. By narrowing in on a single sharp example — jets, Paris Hilton, Bermuda inversions — these metaphors let Democrats grab a bit of the pitchfork tone of populism, while still protecting their ability to fly up to the Hamptons over the weekend on a donor’s plane to assure their hedge-fund supporters that they certainly don’t mean them, the dear friends whose contributions to economic dynamism they so admire and respect.

Modified, limited populism is probably the worst of both worlds. And in so narrowing the scope of the argument, Democrats also misrepresent the substance of their policies, in self-destructive ways. Their metaphors make it sound like taxes are more of a penalty for the grossest extremes of fat-cat America, rather than obligations that all of us share, relative to our ability to contribute. The insistence that any tax increases should affect only households earning more than $250,000 is similar. It leads, predictably, to families with two incomes just edging over the quarter-million mark protesting that they aren’t really that rich and shouldn’t be punished.

So where do all of these fat cats fly to? The Wall St. Journal last month created a database of corporate flights. But most of the database doesn’t include flights in 2011 because corporations have elected to block their aircraft from being tracked.

  • Drae

    Bob – it’s not just the tax code that hurts American job creation, it’s also regulations and litigation. These trade groups have as much power and influence in shaping our economy as “Wall Street Fat Cats” but without the bad reputation. But far too often government uses policy failures as an excuse to double down on bad policy: this control mechanism didn’t work so that means we need more control! Rarely do they see their policies as the source of the problems. Regulatory reform and tort reform would help our economy every bit as much as tax reform – too bad neither party is discussing them.

  • Paul

    That Obama signed this bill does not make it “his” tax loophole. The loophole is part of legislation written by Congress which includes all sorts of other stuff Obama probably didn’t agree with (like extending the Bush tax cuts) and which the president signed because he wanted so badly to extend unemployment benefits.

    It’s disingenuous at best to say that Obama gave corporations this tax break.

  • Trevor

    Also, this is not the right tax break. The accelerated depreciation applies to all jets, including those owned by airlines. The “real” corporate jet break was created in 1987. It allows private jet owners a shorter depreciation schedule than is allowed to the airlines – giving private jet ownership a boost relative to commercial airfare. The 2010 tax item is getting thrown around to confuse the issue, as though it mattered who “gave” the tax break in the first place.

  • Bob Collins

    The five-year break vs. the seven-year break is a separate issue. And also irrelevant since a one-year depreciation trumps a five-year depreciation. For now, there is no five-year depreciation.

    The one-year depreciation is to expire on December 31, so, yes, we’re down to a five year vs. seven year depreciation, a pretty small “loophole.”

    It is interesting, though, to hear the commercial airlines whining about tax breaks for general aviation. Commercial aviation is one of the most heavily subsidized industries in the country,.

  • Drae

    @Paul – it’s true that Congress writes the legislation and spends the money while the President merely signs off on it, but rarely do you see anyone discuss the budgets of the 80s as Congress’ budgets, oh no. It’s always Reagan’s budgets. Congress didn’t spend us into oblivion, it was President Bush, etc. As they say, the President takes the blame as well as the credit for the economy, whether he deserves it or not.