A visitor from another planet listening to President Obama’s press conferences would get the impression that a “tax break for private jet owners” was a major point of political conflict and a significant barrier to a balanced federal budget. But by bringing it up Obama revealed himself to be submerged in frivolous electioneering and utterly disengaged from his duties and obligations as President.
The debt crisis is the latest battle field in the epic struggle between fundamentally opposite ideologies: Liberty, free markets and Constitutionally limited government Vs unlimited government power and intervention. But as the world watches and Americans anxiously wait and hope their political leaders have the courage, the will, and the intellectual capacity to avoid the looming catastrophe the President of the United States plays childish games with trifling tax code minutia.
The purpose of Obama’s news conference was not to inform but to deceive people who lack experience with arcane tax issues by introducing a new enemy for us to resent: the corporate jet owner. Here are some quotes:
…if we choose to keep a tax break for corporate jet owners…then that means we’ve got to cut some kids off from getting a college scholarship.
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?
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.
You’ll still be able to ride on your corporate jet; you’re just going to have to pay a little more.
…if everybody else is willing to…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.
So where did this issue come from so suddenly? Are Republicans really risking the future of America as we know it to protect a special deal for jet owners? What is this tax break?
For readers who are fortunate enough not to have had to learn the details of business taxes here’s the briefest possible primer:
- Businesses from smallest to largest are taxed on their profits. Profits are defined as what is left over after subtracting business expenses from revenue the business receives from selling products and services.
- The tax code devotes thousands of pages of fine print to how those expenses are defined and calculated.
- Purchases of high dollar business equipment that lasts for several years must normally be “depreciated,” meaning the expense is spread over several tax years so the taxable profit is reduced by a smaller amount each year rather than by a huge amount in the year of purchase. Typically, a corporate jet costing several million dollars would be depreciated over 15 – 20 years.
- To provide an incentive to businesses to make big purchases Congress from time to time has enacted various forms of “accelerated depreciation,” allowing the company to expense most or all of a purchase in fewer years, or earlier years or even one year.
The Obama Stimulus law of 2009 includes a specific form of accelerated depreciation for corporate jets. The goal was to encourage corporations to buy jets which, in turn, would create jobs in the aircraft industry. This is the “tax break for corporate jet owners” the President criticized several times during his press conference, a tax measure enacted when Democrats controlled both houses of Congress and he personally signed into law during the first month of his Presidency.
From the government’s point of view, the effect of accelerated depreciation is less tax revenue in early years but more tax revenue in later years. In reality it’s impossible to measure the amount by which accelerated depreciation changes tax revenue over the long term because every company situation is different. A company could end up paying more tax as a result of accelerated depreciation if taxable profits turn out to be more than expected in the later years. Long term, accelerated depreciation for corporate jets is an insignificant cost to the government compared to the cost of programs and entitlements and the size of the annual deficit. The government probably borrowed more during Obama’s 90 minute press conference than it will ever gain by repealing accelerated depreciation of corporate jets.
The press conference headline should be that Obama’s polling operation discovered popular resentment of executives who ride in corporate jets. Thus, instead of proposing any substantive ideas on deficit and debt reduction he used the press conference to hurl out a poll tested bumper sticker to plant the impression that somehow a Republican favored “tax break for corporate jet owners” was a major source of red ink, and a threat to children’s safety and government solvency.