Depreciation is a way for businesses to reduce their tax burden by offsetting the loss in value of purchases for company use, such as trucks, equipment and even corporate jets, over time. Depreciation is not a subsidy. A subsidy is a benefit given by the government, usually in the form of a cash payment or tax reduction, to remove some type of burden and is often considered to be in the interest of the public. A good example of a subsidy is the ethanol subsidy paid to ethanol refiners and farmers.
President Barack Obama wants to target depreciation for corporate-jet ownership, in an attempt to force Republicans to side with the fat-cat corporate executives. In a press conference Mr. Obama said that Congress should restrict depreciation for corporate-jet owners, which allows companies to deduct from profits the decline in a jets’ value.
The corporate aircraft business has not had an easy time during the past decade and should companies lose the ability to depreciate jets the sector could collapse. American executive jet manufacturers such as Cessna would likely see their U.S. sales disintegrate, forcing them to concentrate on foreign sales with a certain migration of employment for maintenance and repairs. The revenue produced by completely eliminating depreciation of corporate aircraft would be miniscule.
In the early ‘90s the government imposed a luxury tax as a key component of the deficit-reduction deal struck as part of President George HW Bush’s famous “No new taxes,” reversal. The tax resulted in crushing the yacht, personal aircraft, luxury automobiles and fur businesses in the depths of a recession. Revenue from the tax was believed to be less than half of what the government would’ve realized without the tax.
Peter Bunce, President of the General Aviation Manufacturers Association, and Thomas Buffenbarger, President of the International Association of Machinists and Aerospace Workers sent a joint letter to the White House stating, “While such talk may appear to some as good politics, the reality is that it hurts one of the leading manufacturing and exporting industries in the United States.”
Mr. Obama’s sole goal in the talks to raise the debt ceiling is to find ways to increase government revenue and limit reductions in government spending. His current tact is to attack tax benefits that are broadly unrealized by the voting public and put Republicans on the defensive. As evident from his “not as shovel-ready as expected,” comment, he doesn’t really understand the business world or he wouldn’t be attacking those that create jobs. When Republicans are targeting reductions in the trillions, the President is offering up window dressing that would produce less than $3 billion over the next decade.
Mr. Obama repeated his past assaults on subsidies for big oil companies and the rich, and then deployed his minions to the morning shows to circulate the latest talking points.
Senior White House advisor David Plouffe told the CBS Early Show, “We’re talking about ending tax loopholes for oil companies, for corporate-jet owners, so that millionaires and billionaires are paying their fair share—a balanced approach.”
Mr. Obama seems to be confused, touting the need to promote U.S. manufacturing while simultaneously picking the pockets of selected industries. Obama made a recent appearance at a plant which makes sheet aluminum used widely in the aircraft industry, extolling the value of the aviation industry to the U.S. economy. He seems to want to promote manufacturing while attacking those who purchase their products; it’s enough to make your head spin.
Mr. Obama isn’t alone in his confusion. White House spokeswoman Amy Brundage said, “Corporate-jet owners benefit from a tax loophole that commercial airliners don’t receive, and the president is simply leveling the playing field by giving corporate jet owners the same depreciation rate as commercial jets. This won’t cost one American job, and will end an unfair tax preference for products with powerful lobbyists.” Ridiculous. Commercial airliners are revenue producing vehicles for the airlines and over their lifetime will repay their cost many times over. At the point an airplane would have been depreciated it would’ve turned a very significant profit and would likely have been sold off to a smaller airline.
The luxury tax had a very short lifespan because it was clear that it had the opposite effect from what the government had anticipated. The tax was repealed in 1993, after only 2 years. The Clinton White House might want to give the current White House a few lessons on the downside to taxing the filthy-rich.
What no one in the White House seems to be able to explain is how raising taxes brings in additional revenue when every lesson from history tells us the exact opposite is true. While many like to point to the Clinton tax hikes of the ‘90s as being a measure of eliminating deficits through taxes, the facts show that a burgeoning economy fueled by the tech-boom had more to do with producing government revenue than any of the increases in personal income taxes.
Given the option of increasing taxes or reducing spending, Democrats will always jump on the tax bandwagon. Taxes have never encouraged businesses to expand or customers to spend. When businesses keep more of their income they will expand; that’s the only way businesses can grow. Customers spend more freely when they have more disposable income, be them individuals or businesses; reach into either of those pockets and ultimately it will cost jobs. Mr. Obama’s consistent attacks on successful people and businesses won’t convince either to open their wallets which is the key to an economic recovery.