privateflyer

Just another WordPress.com site

Wow — Obama really hates corporate jets

with 2 comments

Obama boards Air Force One

Obama not amused by corporate jet tax breaks

By my count, Obama mentioned corporate jets and corporate jet owners six times in his press conference yesterday, when discussing the ongoing negotiations regarding the vote to raise the debt ceiling.  And, not in a good way.  He repeatedly lumped corporate jet owners in with hedge fund managers and oil companies as a group of people that are receiving tax breaks they do not deserve.   He claimed that the cost of keeping the accelerated depreciation for business jets would mean compromising food safety, cutting medical research, decreasing college scholarships, compromising the National Weather Service, and risking children’s safety.   That’s heavy stuff.  And: National Weather Service?  Really?

The arguments for the accelerated depreciation (which is the tax break I believe he’s talking about, though he doesn’t specify) are that it causes businesses to spend money they would not otherwise spend on capital equipment for their business.  By allowing them to accelerate the depreciation schedule, they are able to reduce their tax burden, effectively making the cost of the capital goods lower, encouraging corporations to buy more of them, stimulating jobs at the companies that manufacture and sell those goods, thereby growing the entire economy.  Opinions can differ as to whether or not that type of incentive is an effective way of stimulating the economy.  The interesting part here, though, is how he’s singling out corporate jets.  The accelerated depreciation applies to a broad range of capital goods and it’s not at all clear to me why the policy would be good when applied to most assets and bad when applied to  corporate jets.  Certainly a lot of Americans are employed in the production of private jets and other corporate aircraft, so presumably keeping them employed is desirable.  I don’t think there’s an economic argument for singling out corporate jets, so much as they provide a convenient touchstone for class-warfare rhetoric aimed at the Republicans.  Luckily for Obama, not that many people own corporate jets (or manage hedge funds or oil companies), because he’s clearly not working hard to win their vote.

Of course, Obama didn’t mention where the tax break for corporate jets came from: his own stimulus bill.

Even leaving aside the accelerated depreciation of corporate jets, the tax treatment of aircraft used for business purposes is an interesting topic.  I’ve followed with interest the WSJ’s coverage of corporate jet use, and their strong implication that corporate jets are used far more often for personal use than real corporate business.  The tax code, I feel, is a big reason for this.  The asset cost of private jet travel makes up such a large portion of the total cost, that the deductions for standard depreciation and cost of financing radically changes the cost of flying.

I recently looked at an aircraft management proposal for a used Challenger 300.  The annual asset costs (cost of capital plus depreciation) on that plane represented 73% of the total annual ownership cost.  When you work it all out, someone owning and flying that plane personally ends up paying 33% more per hour than someone who checks the >51% business usage box and takes the relevant deductions.  That’s a massive difference on something that is already so expensive.

So, that creates a massive incentive for a company to allow the executive to use the plane for personal flying and call it a business expense, and for individuals to get creative when claiming business use of their own aircraft.  Having to pay an extra 33% is a bitter pill to swallow, especially when it seems like everyone else is claiming all private jet travel as a business expense.

Transcript of news conference at WSJ

Obama’s case against the rich rings hollow 

Obama targets private jets, Big Oil

Advertisements

2 Responses

Subscribe to comments with RSS.

  1. BAC just cut half its flight department today. 3 feb 2012.

    joe

    February 3, 2012 at 4:17 pm

    • That stinks. I’m sure the executives will still manage to get from place to place, but that’s definitely a shame for the pilots, staff and their families.

      mojofinance

      February 4, 2012 at 12:49 am


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: