Month: July 2011

On “Corporate Jet Loopholes” and other silly titles

Here we are again with the populist rant against the “corporate jet loophole”. Let’s start with some basics: the “loophole” refers to the bonus depreciation provisions that allows taxpayers to write off, in most cases, 100% of the purchase price of new, tangible personal property in the year in which the asset is placed in service.

Now, no one can argue that a 100% writeoff is a bad deal. In fact, it is nearly unprecedented in that under present law there is no ceiling on the amount that can be depreciated. So, as far as “corporate jets” are concerned, it is certaintly nice to have.

Here’s the problem, though, one of many: Exactly how many “corporate jets” are there relative to the amount of capital equipment that is placed in service every year? The bonus provisions are not a corporate jet anything – they will apply to most new purchases of business equipment, perhaps backhoes, vehicles, manufacturing equipment and so on – perhaps the very equipment needed to provide those “shovel ready” stimulus jobs which never showed up. The issue has been framed purely for political purposes: to create the idea that somewhere in the tax code lies a provision hand-crafted and narrowly tailored to give a huge writeoff to “corporate jet” purchasers at the expense of everyone else.

Second, the bonus provisions apply only where the property to be depreciated is “first used” by the taxpayer – i.e. new. There remains a large inventory of used aircraft of all sizes, jets and otherwise, and prices remain largely flat. In terms of the number of units sold the “corporate jet” loophole is smaller than many believe.

This all, of course, sets aside the real damage, which is to the image of general aviation in general, one of the few remaining bastions of American manufacturing. U.S. aircraft manufacturers, and the people that work for them, face more foreign competition than ever from sleek foreign competitors.

Perhaps it’s obvious to point out that this is not about fairness. Rather, it is about cynically pressing buttons designed to inflame and exaggerate classic us versus them cliches. No issue is one-sided, but a little truth wouldn’t hurt.