Why Obama really wants a tax hike on corporate jets

Obama's corporate jet proposal would only save a tiny amount of money. Does the president just want to put Republicans on the defensive?

By , Guest blogger

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    In this March 8, 2011 file photo, visitors tour the Bombardier Global Express XRS corporate jet during the Asian Aerospace Show in Hong Kong. In the US, President Obama wants to raise taxes for corporate jets, even though the revenue would only raise a trivial amount of money.
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President Obama’s proposal to raise taxes on corporate jets is the Democratic version of “waste, fraud and abuse”—a political attack on a target of opportunity that has little significance in the real world.

Just as pols have long implied that reducing government waste or cutting foreign aid can result in big budget savings, so now the White House is doing the same with a handful of tax breaks for the rich.

Obama can do the math—he understands his corporate jet proposal would only trivially reduce the deficit. But the president wants to put the GOP on the defensive for its absolutist opposition to any tax increases. So, he claims, Republicans are willing to jeopardize the credit of the United States in order to protect, as he so dramatically puts it, “millionaires and billionaires.” And I thought he was talking about the NBA lockout.

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It isn’t clear exactly what tax subsidy Obama is talking about, though he appears to be going after a 1987 law that allows corporate jets to be depreciated over 5 years rather than the 7 years required for commercial aircraft. According to a 2007 revenue estimate, this would shave about $3 billion off the deficit over a decade, or roughly $300 million-a-year. You’ll recall that this year’s deficit is likely to be about $1.4 trillion.

Understanding this proposal is even more difficult thanks to a 2010 law that allows companies to accelerate their depreciation write-offs for equipment purchased in 2010 and 2011. I guess Obama is assuming this “bonus depreciation” measure will expire as scheduled at the end of this year. I wonder what the over/under is on that.

If, as part of deficit-cutting tax reform, Obama wants to take on the arbitrary and often-irrational system of business depreciation, I’m with him. Making tax write-offs square with the real decline in the economic value of plant and equipment is a great idea. Btw, by this standard, even 7 year depreciation is extremely generous for corporate jets, whose real useful lives exceed 20 years.

An even better idea may be to permanently allow companies to expense (or write-off the full cost) of plant and equipment in the year it is acquired–as long as firms can no longer also deduct interest costs. This is, in fact, a key element of a consumption tax.

But Obama is not proposing a wholesale reform of business depreciation. Instead, he is targeting one small tax break that nicely conjures images of fat-cat corporate execs but misses the real point.

I get that Democrats want to force Republicans to violate their no tax-pledge. Their theory seems to be that if Rs break their vow just a teensy bit now they’ll be more willing to sign on to major revenue-raisers later. This doesn’t actually make any sense to me but, what do I know? I only write a tax blog.

So the grotesque dance continues. The entirely artificial debt limit crisis, created by politicians to gain electoral advantage, grinds on. While the rest of us await serious proposals to address the deficit, we instead get to listen to never-ending, but ultimately meaningless, base-pleasing rhetoric—of which Obama’s corporate jet gambit is just the latest.

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