# News The tax on corporate jets.

#### Jimmy Snyder

Here is an excerpt from the President's June 29, press conference.

Barak Hussein Obama said:
It would be nice if we could keep every tax break there is, but we’ve got to make some tough choices here if we want to reduce our deficit. And if we choose to keep those tax breaks for millionaires and billionaires, if we choose to keep a tax break for corporate jet owners, if we choose to keep tax breaks for oil and gas companies that are making hundreds of billions of dollars, then that means we’ve got to cut some kids off from getting a college scholarship. That means we’ve got to stop funding certain grants for medical research. That means that food safety may be compromised. That means that Medicare has to bear a greater part of the burden. Those are the choices we have to make.

As I understand it, the tax code is thousands of pages long and is filled with special conditions for this industry and that. Apparently, there is special treatment for corporate jets. There are two ways to help the corporate jet industry. One would be to hand them a check for $x, and the other way would be to lower their taxes by$x, or in this case, I think it lowers the taxes of their customers. Either way it's $x. From the point of view of the jet manufacturers and their customers, the tax break is better than a check in two ways. 1. It doesn't look like welfare even though it is. 2. If someone suggests that it be taken away, they can be accused of raising taxes. However, there is a larger issue here. The govt has decided to support some companies at the expense of others. How is this different from the central planning that worked so poorly for the Soviets? In the light of that question (I hope someone can answer it.) it comes as no surprise to me that the Democrat President would say "It would be nice if we could keep every tax break there is." Let us delete one line from that thousand page document and really stick it to those fat cats while continuing to micromanage the economy. What does surprise me is the response from the Republicans. I would have expected them to say, "It would be nice if we could get rid of every tax break there is and get the govt off the backs of the business community. But THIS tax break is not the right place to start." That would have made sense. Instead, they are saying that this is a good tax break and we should keep it. Is there a politician left in this country that isn't a #%$&ing Communist?

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#### Ivan Seeking

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Barack

I doubt that corporate jets are treated any differently than other business purchases. While I agree with the tone of your complaint, I don't see how it qualifies as special treatment.

Besides that, we just got a new BBQ that is partly deductible for the business, so you're treading on thin ice when you try to take away my tax deductions. We're talking about a $100 deduction here! #### Al68 There are two ways to help the corporate jet industry. One would be to hand them a check for$x, and the other way would be to lower their taxes by $x, or in this case, I think it lowers the taxes of their customers. Either way it's$x. From the point of view of the jet manufacturers and their customers, the tax break is better than a check in two ways. 1. It doesn't look like welfare even though it is. 2. If someone suggests that it be taken away, they can be accused of raising taxes.
Now that's just incorrect. Welfare is when the government gives someone money, not when someone "doesn't give" government (as much) money. Eliminating a tax deduction is "raising taxes" as a matter of reality, not an accusation.

Even under the assumption that the tax "should be" paid, its not being paid is not the same as someone being "given" money.

As far as being communist, the false equivalency above is far more communist than using the tax code to tax people differently. That false equivalency, although common, uses the assumption that the money in question is owned collectively (controlled by government), in an original sense.

#### Ivan Seeking

Staff Emeritus
Gold Member
Now that's just incorrect. Welfare is when the government gives someone money, not when someone "doesn't give" government (as much) money. Eliminating a tax deduction is "raising taxes" as a matter of reality, not an accusation.
However, if some companies get special [unfair, inequitable] treatment, it isn't a strict matter of taxation. So what would you call it?

Staff Emeritus
Yes, you're right, that the tax code is complicated. To be honest, I don't understand exactly what the President has in mind here, since he hasn't specified exactly, and the tax code is complicated. In calculating how much profit your firm made (and thus can be taxed on), the accounting is such that if the company buys some property, it can't take the full cost as an expense the year it's purchased - it has to spread it out over three, or five, or seven, etc.. How long depends on the kind of property. Computers are five year property. Office chairs are seven year property. And so on.

Under current law, aircraft are 5-year property. If you buy an airplane, you can expense 20% of its cost for each of the first five years of operation. (I won't get into MACRS here) I don't know if the President is suggesting that aircraft become 7-year property (the default) or what.

To first order, this doesn't change how much money the government gets - only when it gets it. To second order, the longer the item takes to depreciate, the harder it is for companies to try and time things so that they are in different brackets in different years. If a company is normally in the 35% bracket, but can shuffle expenses in and out of fiscal years, and can spend on year in perhaps 5 in the 15% bracket, they make more money.

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Is there a politician left in this country that isn't a #%$&ing Communist? Commie, Schwammie...... What I want to know is; "Why, if communism is so bad, are the Chinese winning the economic war?" And those darned Rooskies! 18 years ago, they were also stinkin' Commies. Now they've got a bazzilion billionaires in Moscow! anyways... When I'm short of change, I pull up the cushions on the couch and look for long lost pennies, dimes, and nickels. hmmm..... Where am I going with this? That new Cain dude. I like him. He sounds like Jefferson. "We don't need 1200 page bills!" I agree. A 1200 page long bill is just stupid. I don't care what John Stewart said about him; "I don't like to read!" And on the eve of America's 235th anniversary, I do'est quote, one of my most favorite and respected presidents: Thomas Jefferson said: God forbid we should ever be twenty years without such a rebellion. The people cannot be all, and always, well informed. The part which is wrong will be discontented, in proportion to the importance of the facts they misconceive. If they remain quiet under such misconceptions, it is lethargy, the forerunner of death to the public liberty. ... What country before ever existed a century and half without a rebellion? And what country can preserve its liberties if their rulers are not warned from time to time that their people preserve the spirit of resistance? Let them take arms. The remedy is to set them right as to facts, pardon and pacify them. What signify a few lives lost in a century or two? The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants. It is its natural manure. I will dwell on the above, and Obama's push for US universal internet access, and us being informed, later. But it's time to play some music. https://www.youtube.com/watch?v=GO3gPUn24FI God bless America. If only you could see young Thomas, that one day, if they'd just open their eyes, and ears, and minds, they could be. And by the way, thank you for founding us a great nation. :) #### Al68 However, if some companies get special [unfair, inequitable] treatment, it isn't a strict matter of taxation. So what would you call it? Sure, it's a matter of taxation, even if the taxation is unfair and discriminatory. That's why so many of us want to eliminate the tax code as we know it in favor of a simple, fair tax system. For example, there is no legitimate reason for government to tax the customers of GE's competitors but not GE's own customers (via a discriminatory corporate income tax). This gives GE a huge advantage over its competition. A flat corporate income tax (sales tax) would tax their customers equally, and not give an unfair advantage to anyone. So would eliminating that tax altogether. Last edited by a moderator: #### Dale Mentor What I want to know is; "Why, if communism is so bad, are the Chinese winning the economic war?" They are not winning. They just aren't losing as badly as they used to. And the reason why is that they have started to adopt capitalism and relax their communistic policies. #### Jimmy Snyder Welfare is when the government gives someone money, not when someone "doesn't give" government (as much) money. The govt giving me$1 more or me giving the govt $1 less is a distinction without a difference. Especially since it is argued that one is bad and the other is good. #### Jimmy Snyder As far as being communist, the false equivalency above is far more communist than using the tax code to tax people differently. I was speaking about the Central Planning Committee of Congress, the committee that decides which businesses get tax breaks and which ones don't. I am interested in hearing why this horribly failed policy of the Soviets is expected to work well here. I am suggesting that the govt get out of the business of picking which businesses deserve extra money and which ones don't and let the free market make that decision. This is 'far more communist'? No wonder we have the current system. #### WhoWee Yes, you're right, that the tax code is complicated. To be honest, I don't understand exactly what the President has in mind here, since he hasn't specified exactly, and the tax code is complicated. In calculating how much profit your firm made (and thus can be taxed on), the accounting is such that if the company buys some property, it can't take the full cost as an expense the year it's purchased - it has to spread it out over three, or five, or seven, etc.. How long depends on the kind of property. Computers are five year property. Office chairs are seven year property. And so on. Under current law, aircraft are 5-year property. If you buy an airplane, you can expense 20% of its cost for each of the first five years of operation. (I won't get into MACRS here) I don't know if the President is suggesting that aircraft become 7-year property (the default) or what. To first order, this doesn't change how much money the government gets - only when it gets it. To second order, the longer the item takes to depreciate, the harder it is for companies to try and time things so that they are in different brackets in different years. If a company is normally in the 35% bracket, but can shuffle expenses in and out of fiscal years, and can spend on year in perhaps 5 in the 15% bracket, they make more money. I have a great deal of experience in the large ticket leasing business (main frames, aircraft, ships, locomotives, heavy equipment, medical equipment, and buildings). Large companies typically lease executive jets - replacing them often for newer models and avoiding maintenance and re-sale issues. This type of accounting adjustment will have an effect on lease finance structure and terms - the executives cruising at 30,000 feet will not know the difference - IMO. This is nothing but cheap sales talk from the President - again IMO. #### Vanadium 50 Staff Emeritus Science Advisor Education Advisor Of course it won't make a huge difference. Charles Krauthammer says it best: On President Obama’s attack on the corporate jet tax break to achieve debt reduction: He himself, as we just heard, said you can’t reduce the deficit to the levels we need without raising revenues. Then he talks about corporate jets, which he mentioned not once but six times. I did the math on this. If you collect the corporate jet tax every year for the next 5,000 years, you will cover one year of the debt that Obama has run up. One year. To put it another way, if you started collecting that tax at the time of John the Baptist and you collected it every year — first in shekels and now in dollars — you wouldn’t be halfway to covering one year of the amount of debt that Obama has run up. This won't make a dent in anything. As I pointed out, to first order, the effect is revenue neutral. It's there to fire up the base. Judging from the messages here, it worked. My real fear in this is that it will cause a collapse of one or more major airlines. Exxon owns nine jets. United Continental Holdings owns almost 700. Who do you think will be affected more? #### Jimmy Snyder My real fear in this is that it will cause a collapse of one or more major airlines. Exxon owns nine jets. United Continental Holdings owns almost 700. Who do you think will be affected more? I wouldn't have thought that United's jets would be considered 'corporate jets', but I don't know for sure. If I'm right and they aren't, then my point is that the current setup would tend to benefit Exxon over United, and changing it as Obama wants would tend to level things. Changing this single line of that 1000 page document is for show only. I am in favor of removing all of the special cases in the tax law and get the govt to stop playing favorites. The free market is the most efficient way to determine which businesses deserve to prosper. #### WhoWee I wouldn't have thought that United's jets would be considered 'corporate jets', but I don't know for sure. If I'm right and they aren't, then my point is that the current setup would tend to benefit Exxon over United, and changing it as Obama wants would tend to level things. Changing this single line of that 1000 page document is for show only. I am in favor of removing all of the special cases in the tax law and get the govt to stop playing favorites. The free market is the most efficient way to determine which businesses deserve to prosper. It's doubtful the President or the political speech writer knows the tax code related to aircraft - IMO. #### Al68 The govt giving me$1 more or me giving the govt $1 less is a distinction without a difference. Especially since it is argued that one is bad and the other is good. The difference isn't the$1 itself, the difference is between you giving government money and the government giving you money. One is welfare while the other is taxation.

According to your logic, all privately created wealth not taken by government via taxation is equivalent ("without a difference") to welfare.

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As far as I can tell without paying an accountant, the present "corporate jet tax break" is that airplanes are treated as 5-year property rather than the default 7-year. This is true no matter who owns the airplane, and that's part of the tradition of equality in the USA: laws apply to everybody equally. If you're a company, and you own a chair, it's 7 years, whether you are Exxon or Continental. If it's an airplane, it's 5 years, again whether you are Exxon or Continental.

#### WhoWee

As far as I can tell without paying an accountant, the present "corporate jet tax break" is that airplanes are treated as 5-year property rather than the default 7-year. This is true no matter who owns the airplane, and that's part of the tradition of equality in the USA: laws apply to everybody equally. If you're a company, and you own a chair, it's 7 years, whether you are Exxon or Continental. If it's an airplane, it's 5 years, again whether you are Exxon or Continental.
Again, if Exxon or Continental are leasing the aircraft for 3 years - they don't care about the depreciation schedule - the leasing company and finance partners are affected - the leasing industry is based upon tax laws.

#### mege

Of course it won't make a huge difference. Charles Krauthammer says it best:

This won't make a dent in anything. As I pointed out, to first order, the effect is revenue neutral. It's there to fire up the base. Judging from the messages here, it worked.

My real fear in this is that it will cause a collapse of one or more major airlines. Exxon owns nine jets. United Continental Holdings owns almost 700. Who do you think will be affected more?
This. It's a buzzword to point out percieved corporate extravagance.

Small companys can own private aircraft, as well. There's lots of small courier operations, private trainers, crop dusters, etc that have aircraft and are not a percieved extravagance. While I don't claim to understand the tax code well, in this case, so speaking purely hypothetically: if you make the end user pay more - it's going to hurt those whom rely on aircraft for their livelyhood as you can't differentiate between 'travel for meeting' and 'crop dusting' as different reasons for owning a plane. Travel, for many contractors, sales folks, etc, is just as integral for their business as the crop duster.

#### Jimmy Snyder

the difference is between you giving government money and the government giving you money.
No it isn't. The difference is between me NOT giving the govt money and the govt giving me money. Either way I end up with one more dollar more in my pocket, the govt with one dollar less. As I said, the beneficiaries prefer the tax reduction over the handout because it fools people.

Again, the larger issue is that the govt is selecting the airline industry over the rail industry. Why?

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#### Al68

No it isn't. The difference is between me NOT giving the govt money and the govt giving me money. Either way I end up with one more dollar more in my pocket, the govt with one dollar less.
Again, by your logic, your failure to send me $100 yesterday is equivalent to you taking$100 from me. After all, either way, you have $100 more while I have$100 less, right? Did you do the equivalent of taking $100 from me yesterday? And again today? You plan on ripping me off tomorrow, too? Why must you take money from me every day? Are we done with such nonsense? #### Jimmy Snyder Again, by your logic, your failure to send me$100 yesterday is equivalent to you taking $100 from me. After all, either way, you have$100 more while I have $100 less, right? Did you do the equivalent of taking$100 from me yesterday? And again today? You plan on ripping me off tomorrow, too? Why must you take money from me every day?

Are we done with such nonsense?
One would hope. The choice is $100 reduction in my taxes, or$100 handout from the govt. On the basis of what criteria should I choose?

#### Al68

One would hope. The choice is $100 reduction in my taxes, or$100 handout from the govt. On the basis of what criteria should I choose?
The same criteria you can use to choose between you taking $100 from me and you failing to send me$100. :uhh:

#### Jimmy Snyder

The same criteria you can use to choose between you taking $100 from me and you failing to send me$100. :uhh:
And what would that be?

Staff Emeritus
Again, if Exxon or Continental are leasing the aircraft for 3 years - they don't care about the depreciation schedule - the leasing company and finance partners are affected - the leasing industry is based upon tax laws.
True, but many companies own their planes. United Continental owns at least the United half of their planes. I know this because it was a factor in United's most recent bankruptcy. I think Exxon does as well, after the Reso kidnapping. A few minutes with their SEC reports suggested they own two or more, but I couldn't get the exact number.

In any event, without more details about what the President has in mind, it's really hard to figure out what's going on. As they say, we don't estimate speeches.

#### Al68

The same criteria you can use to choose between you taking $100 from me and you failing to send me$100. :uhh:
And what would that be?
Any criteria you want. The difference is in the actions themselves, not the criteria used to choose between them. I would have "\$100 less" either way, right?

The difference is obvious to everyone else reading this, if it's not obvious to you by now, there's nothing else I can possibly say to change that. Good luck with it.