AIN Blog: Bizav and Obama: Time for a Reality Check

 - March 2, 2013, 7:30 AM
President Obama has proposed eliminating a tax break for business jet buyers.
President Obama has proposed eliminating a tax break for business jet buyers.

If I had to sum up the benefits of business jets in just one word, I might pick “convenience.” According to Wikipedia, “convenient procedures, products and services are those intended to increase ease in accessibility, save resources (such as time, effort and energy) and decrease frustration.”

That’s exactly what our magazine has long argued: that for companies that can afford them, business jets are well worth considering because they can provide better accessibility to more places and save effort, energy and especially time. Other bizjet advocates have been saying the same thing for years.

This is also what President Obama said in an interview on February 20.

So how did the industry respond? A press release from the National Business Aviation Association said, “An assertion was offered by the White House that the only reason American companies use business aircraft is because ‘it’s extremely convenient and they can afford it.’” This, said the NBAA, is “dismissive,” “a misrepresentation” and “a caricature of business aviation that is at odds with reality.”

First, Obama never used the word “only”—the NBAA added that, apparently for effect. Second, the president’s statement is true.

So why is the industry upset? Undoubtedly because the president also suggested, as he has on previous occasions, that it’s time to talk about extending the depreciation period for tax purposes for many business jets from five years to seven. These buyers “don’t need an extra tax break, especially at a time when we’re trying to reduce the deficit,” Obama said. “Something’s gotta give.”

Mind you, the president recently signed a bill that extended through 2013 (and 2014, in some cases) a rule that allows bizjet buyers to write off more than half their purchase cost during the first year. In the February 20 interview, also, he said, “We want to give more tax breaks to all the aviation companies in Kansas, so that they are hiring here and producing here.” But for bizav leaders, that statement and the extension of bonus depreciation apparently weren’t enough to outweigh the comment about extending depreciation periods for buyers, which according to them, seemingly suggested that the president was advocating some sort of aviation industry apocalypse.

Helicopter Association International president Matt Zuccaro, for example, called the president’s comment “unbelievable” and “seemingly aimed at ending general aviation.” Zuccaro added that he had no problem with the president flying on Air Force One, but “is it too much to ask that private individuals and corporations also be allowed to realize the benefits of general aviation for their business activities?”

General Aviation Manufacturers Association CEO Pete Bunce responded similarly when White House spokesman Jay Carney noted that the tax proposal involved “difficult choices.” Bunce called that statement “totally outrageous” and demanded an apology, adding: “It’s completely offensive to refer to hard-working Americans [in the aviation industry who could lose their jobs] as ‘difficult choices.’ This Administration should stop the sound bites and political games.”

As I’ve written previously, the president may indeed be playing a bit of a political game, based on the number of times he has mentioned corporate jets—a term the general public has come to associate with wealth and excess. But it seems to me that the bizav industry is playing a political game here, too—and it’s the same one being played by leaders in virtually every other American industry, none of whom appear to believe their members should pay higher taxes, either. They all say that their businesses contribute greatly to the economy and that making them pay more would not be good for America, so the money needed to reduce the deficit and pay down the national debt should come from somewhere else.

Be that as it may, adding two years to the depreciation schedule for business-jet buyers wouldn’t exactly make a huge difference in the nation’s economy, but it probably also wouldn’t hurt the industry nearly as much as its leaders suggest. BJT columnist Jeff Wieand, a member of the NBAA’s Tax Committee, doesn’t believe this change would have a significant impact on jet sales, nor for that matter, does he see bonus depreciation as a major factor in boosting sales. As he noted in our pages two years ago, bonus depreciation doesn’t apply to used aircraft and it doesn’t help the U.S. aviation industry when it is applied to the purchase of the many new business airplanes that are manufactured outside the U.S. Moreover, it merely accelerates a tax benefit rather than creates a new one; it is of value only to companies that are already doing well and have profits to shelter; and it could actually lead to higher aircraft prices.

Meanwhile, as economist and New York Times columnist Paul Krugman pointed out last July, corporations already have plenty of cash they’re not using. As such, he wrote, claims “that a corporate tax holiday would create jobs, or that ending the tax break for corporate jets would destroy jobs, are nonsense.”

So maybe we should all take a deep breath and relax. Corporate jets represent a valuable business tool. And if Congress tinkers with the depreciation rules for new-jet purchases, that tool will still be available and the bizav industry will not die, all suggestions to the contrary notwithstanding. The business aviation associations have a case to make, but they could make it better and more credibly if they toned down the rhetoric.

Comments

Kathryn Creedy's picture

Bravo! This is a reasoned editorial. Congratulations on a job well done.

TERRY's picture

There is no one to blame for all this mess except congress since they started taxing every thing we buy sell drive, our pay and the water we drink. We the people believe all the hog wash they put out and they are not following the constitution. If it does not let them do what they want they change it so it will meet their agenda. All we need to do is vote them out of office. Ya think that might happen?

Sharon's picture

I agree completely. I'm sick and tired of every special interest group thinking their own ill-begotten breaks should be protected, to the detriment of everyone else. Wake up, people, there have been too many hogs in the trough for too long, and we need to make some painful corrections. A new GenAv aircraft's actual useful life is a heck of a lot closer to 20 years (or 30, or...) than to five. The five year life is a travesty whose time to die has come. That it's less than air transport aircraft is laughable in the extreme, since that life is also ludicrous.

JO in Florida's picture

You lost me at mentioning Paul Krugman, who comes off more often than not a statist hack. Speaking of political motives. But aside from that, you miss the difference of a tax and spend president and industries that must make a budget that is for-real.

The difference between what Obama's rhetoric commits and some, not all, of these industry talkers, is that Obama has continually moved the goal posts whenever the debate over taxes, jobs and "fairness" comes down to decision time. And, decisions being something he also, more often than not, lays on other people, he also lays blame more than any president in history.

Also, Obama is proven vastly unlike industry CEOs and presidents, as they have to meet a bottom line or do the things that are hard - for their scale. Obama not only doesn't have to control costs, which he had not, but appears to refuse to use anything to truly lessen this burden.

This is no time to give this president a pass for his lack of leadership by trying to color industry leaders as playing the same game as him. Because they are not. His rhetoric on economic matters not only frustrates some aviation industry talkers, it upsets the whole system. He's woefully out of touch with eocnomics.

Too bad you choose to follow his lead and let the blame fall on those he uses as lowly props for his misinformed economic agenda.

Mike C's picture

I agree...also the return of the accelerated deperciation for farm equipment, high gross vehicle weight trucks and the like back to the old deperciation schedule of say fifteeen years ago, and so on. Yes these are the tax beaks and many others that have distroted markets for light plane SUVs, and other manufactured goods raising voilitility in the market that had many long term unwelcome effects.

There is a rather large list.
This is a reasonable compromise.

And yes I work in the manufacturing industry and will be affected, BUT the concept of depreciaiton is to return the capital obligation back through the company cash flow through a reasonable time based on the length of service of the item. A 5 year life is rather short for a bizjet as is 3 for an SUV. While the accelated methods may not have in themselves shortened the overall time the front loaded acclerated depreciation increased demand far higher than other wise would be normal. YET over time the deomand for jet seat time etc is not affected. the accellerated methods basically hepled fill the pipe ahead of need ..retiring otherwise useful vehicles from A companies books earlier yet still having a useful service of theses items....a complex way of saying...that we are accelleraitng demand in the short term withoverall demand not chnaging leading to a reduced demand in the future..ie no orders..ask Cessna, Piper, Cirrus, Diamond etc who filled the demand then had no future work. WAS THIS SMART?
probably not.

Most of the time when Congress messes with tax law they do not improve it. It needs to be changed back to what worked..Well though out schedules of depreciaiton...remioval of special tax incentives ...simplification ...relalvance....consistancy...these are the hallmarks of good law and policy.

Tom in Minnesota's picture

Another Bravo from me on the Editorial . I can't imagine this or any other President trying to resolve the bottom line who would make everyone 'happy' in the process. But the tax rates on the top 1/8th earners in the country are still the lowest they've been in decades without even a mention of loopholes. Yet the suggestion that they need changing brings from many a name calling strategy instead of reasoned debate. Referring to an earlier comment; It can only work with those who think calling Obama a 'tax and spend president' is argument enough or those who really believe that a Nobel prize winning Economist doesn't understand Economics.

Lon Sobel's picture

Mr. Burger, you are absolutely correct. And thank you for having the nerve to say so to a group of readers that include too many like JO in Florida. Lots of folks in the U.S. just don't like the President and don't approve of anything he says or does, even when he continues or proposes programs and policies put in place or originally advocated by Republicans. Those folks include what appears to be a surprising percentage of pilots and aircraft owners. When Governor Romney was campaigning for President on a platform that included eliminating tax deductions (he called them "loopholes"), which deductions did aircraft owners imagine he was talking about? Deductions for dependents? President Obama is doing no more that affects aircraft owners than Romney himself would have done. And it's time we pilots and aircraft owners recognize and acknowledge that.

Tom from Tahoe's picture

Thank you for your careful, accurate presentation. The trade association arguments are spurious and denigrate the image of the aviation community.

Successful business professional do not make investment and purchase decisions based on the tax code. Occasionally, the code may add a cherry to the top of the sundae, but the purchase decision must stand on it's own merit.

Lynn 's picture

Tax codes are generally written to manipulate taxpayer behavior. And in this case, the purpose is to encourage people and companies to spend money which benefits the economy. If you don't think it's making much difference, why bother to change it?

Elisa Carrithers's picture

Thanks Jeff - I agree - Let's tone down the rhetoric!

James Carlson's picture

Bravo! You've put it well. By completely overstating their case, the manufacturers (and their supporters among the AOPA leadership and others) have managed to discourage the very people who should be on their side.

Is anything that ends up causing tax bills to go up ever "welcomed?" Probably not. But in the scheme of things, changing depreciation from 5 to 7 years for new aircraft purchases for business purposes, particularly when the taxes are recaptured as gains on resale, amounts to nothing more than a small shifting around of existing money.

Because purchases are driven mostly by needs -- very few businesses discover that they have a pile of money somewhere and decide spontaneously to spend it on an otherwise unneeded aircraft -- the shift is unlikely to have lasting effects on sales, and the rhetoric claiming that it's a disaster needs to be toned down if it's going to reach and persuade any reasonable people.

Maybe the proposed change is indeed a bad thing, but yelling as if the sky is falling certainly makes me think otherwise.

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