“[New billionaires in fast-growing countries] have to buy longer-range airplanes. If you’re flying from Mongolia to Nigeria, it’s either a three-day journey flying commercial or a nine-hour flight on your jet.”
Bizav and Obama: Time for a Reality Check
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.