By accusing Republicans of favoring corporate jet setters over kids, President Obama drew attention to his own use of similar policies to encourage investment, a reminder of the tension between deficit reduction and economic growth.
While critics charge the president with flip-flopping, the story is more complicated. Obama included the tax break, called “accelerated depreciation,” in the 2009 economic-stimulus law to lower the cost of capital investments—including aircraft purchases—for millions of companies. Today, the administration is targeting a tax disparity dating back to 1987 that specifically favors business planes over commercial airliners.
“Nine months ago, this president extolled the virtues of shortening depreciation schedules to stimulate jobs,” National Business Aviation Association President and CEO Ed Bolen said in a statement. “Now he seems to want to reverse course and push ahead with punitive treatment for general aviation, an industry that creates jobs, helps companies succeed, and serves communities all around America."
Obama's support of the depreciation policy, used by President George W. Bush to stimulate the flagging airline industry after the 9/11 attacks, was originally intended to expire after a year, but the administration extended it for a second year in a bipartisan tax agreement struck in December 2010, citing the need for further economic stimulus.
Now, Congress and the administration are focused on a deficit-reduction package that will allow an increase in the debt ceiling. Democrats are demanding a balanced approach that includes revenue increases as well as spending cuts, but Republicans are standing firm against tax hikes. Many economists, including Federal Reserve Chairman Ben Bernanke, worry that overreliance on significant spending cuts could severely reduce economic growth.
To gain more revenue, Democratic negotiators and Obama—who mentioned corporate jets six times during his press conference—want to end the special treatment of corporate jets, which depreciate for tax purposes two years faster than commercial aircraft.
The reduction in the deficit is relatively small—it would save perhaps $3 billion dollars—but the political value is high: The White House argues that few Americans would support cuts to government programs they consider vital while profitable corporations avoid making a contribution to deficit reduction.
However, the proposal does cut against Obama’s efforts to spur business investment.
If the corporate jet loophole is closed, big companies won’t be the only ones who feel the pinch. Staff for Senate Minority Leader Mitch McConnell, R-Ky., are touting a Wichita Business Journal story reporting that union leaders and Carl Brewer, the Democratic mayor of Wichita, Kan., object to Obama's remarks.
“General aviation is a crucially important part of our national economy and an economic engine for thousands of communities across the nation, many of which would lose local manufacturing jobs or local business growth if faced with additional tax burdens,” Brewer said.