Hypocrisy, Obama and the Corporate Jet Tax Deduction

There is considerable economic and political news out there today. The “jobs report” was again dismal and the debt ceiling negotiations continue to drone on, photo op after photo op. Did I mention the unemployment rate increased again this month? Plus there is the sideshow of the scandal in Great Britain involving News Corporation.

But what is bugging me is the corporate jet tax deduction and how it now represents political hypocrisy, deception, distortion or maybe even intentional misstatement. Maybe it also represents a lack of knowledge on the part of the President. None of these conditions are good, and I have seen this type of conduct at every level in Washington politics but for some reason this one bothers me more than most.

The General Aviation business in this country is big business. It is a manufacturing business that pays good wages, employs a considerable number skilled people and exports a good deal of its products.

I wrote about the tax treatment of corporate jet aircraft last week but here is the rub and the hypocrisy. Since 1987 the tax law has provided that corporate jets (actually aircraft in general) can be depreciated over 5 years rather than the 7 years required for commercial aircraft. So the tax treatment for the past 24 years on depreciating these capital assets has been firmly in place. The country has had 5 different Presidents and 12 or so different Congresses with different mixtures of political control but this tax provision has endured. 

A week or more ago, President Obama mentioned the tax treatment of corporate jets in his press conference six times. Since then, he continually brings up the issue.  Liberals on the Hill have taken up the clarion call. He uses it to demonstrate that somehow horrible and heartless Republicans are behind this travesty, the very existence is taking the food out of poor people’s mouths. In addition, crushing the corporate jet fat cats will help reduce the deficit (although he knows better). In fact, as mentioned here and elsewhere, the entire depreciation differential over commercial craft is worth about $3 billion over a 10-year period. As I like to continually point out, the deficit this year is $1.65 trillion.

It is not clear what the exact tax treatment the President had in mind, but the kind of tax break Obama criticized was actually enhanced for corporate jet owners in the Democrats' stimulus package in early 2009. The provision let companies take bigger deductions earlier for depreciation or so called “Bonus Depreciation”.  

Bonus Depreciation allows aircraft owners to realize the depreciation of an eligible asset more quickly, not entitled to more depreciation. When available, Bonus Depreciation can be utilized by owners of many capital assets (like cars, tractors or wrecking balls) and is not an aviation specific benefit.

To compound the hypocrisy, the Democrat-controlled Congress passed at the end of 2010 further tax provisions to extend and enhance Bonus Depreciation by providing it at 100-percent accelerated, or "Bonus Depreciation” for investments in capital assets, including new aircraft, through the end of 2011.The legislation also provides for "bonus" depreciation allowance of 50 percent during 2012. The President signed this bill 6 months ago. Did he forget this fact? Was it just a mistake? Did he just become aware of this tax “loophole”? If he knew back then, why didn’t he mention it at the time?

It is not all together clear what the President has in mind in changing the tax treatment of the corporate jet (does it include propeller driven aircraft also?) Does it just apply to the Democrat-passed Bonus Depreciation rule set to expire or the useful life of the aircraft for deprecation?

 There are a lot of bogus provisions in the tax code. Many giveaways, transition rules, and useless subsidies. However, this President has dirt under his fingernails on this one. He does a big disservice to himself and his office by engaging in misdirected hyper-finger wagging. He should have taken a high road and said, that although he signed into law-on two occasions- provisions to help the General Aviation business, he now think the tax treatment in place for the last 24 years plus the Bonus Depreciation provisions passed twice by a Democrat Congress are too generous and he would like Congress to reconsider them. Now, wouldn’t that be refreshing and a miracle to boot. Hey, the Senate is not doing any thing; maybe Senator Reid will put this item up for a vote. Now that would be astonishing.

I believe the use of accelerated depreciation is a useful tool to promote investment in plant and equipment but have no specific views on jet aircraft depreciation. Perhaps, there will be another time to discuss the concept of useful life of an asset. (By the way, the real useful life of an aircraft is more like 20 years not 5-7 years as in current law)

 I appreciate political deception and cheap political comments but this jet stuff is too much.