When I heard President Obama’s Press Conference on June 29, 2011, I wondered if corporate jet tax policies were being driven by a simulacrum or pragmatism. The references to corporate jets seemed to be more aligned with a simulacrum; and the tax policy aspects seemed to be driven by pragmatic concerns with a smattering of campaign type rhetoric. Consequently, the President’s comments generated some strong reactions from associations/lobbyists, the private sector, and unions.
On June 29, 2011, the President and CEO of the General Aviation Manufacturers Association, and the International President of the International Association of Machinists and Aerospace Workers issued a news release with an attachment of a letter addressed to President Obama which was critical of his remarks about corporate aircraft and proposed changes to the tax code. After complementing President Obama on his emphasis on manufacturing, new technology and innovation, they expressed concern that his rhetoric and proposed tax changes would negatively impact the United States general aviation industry which has about 1.2 million jobs linked to it, contributes about $150 billion annually to the U. S. economy, and is a major source of exports.
During the severe economic downturn in 2008, ill-informed criticism of corporate jets and business aviation exacerbated the challenges facing our industry, which led to depressed new aircraft sales and jeopardized very good, high-paying jobs throughout the United States. More than 20,000 highly skilled IAM members were laid off in this industry.
As our industry looks to begin a recovery and the workforce returns to their high-skilled jobs, we are very concerned that the rhetoric coming from some in your Administration will lead to similar economic difficulties. While such talk may appear to some as good politics, the reality is that it hurts one of the leading manufacturing and exporting industries in the United States. And it adds to the pain so many working families have endured.
Ed Bolen, The President and CEO of the National Business Aviation Association, a lobbyist, which represents more than 8,000 companies which serve the business aviation community, used even stronger language:
“The Obama proposal is bad policy and cynical politics. We will oppose the idea vigorously, and we call on Congress to reject it. We need to focus on policies that foster the growth of business aviation, so that it can continue serving citizens, companies and communities across the U.S.”
Here we see how difficult it is to separate tax policy and fiscal policy from electoral politics. As expected, associational groups including unions want policies in place which support growth in corporate aviation. President Obama proposed a tax code change, which would lengthen tax depreciation on corporate jets (5 years) to the same schedule used for commercial aviation (7 years). Some people in the Treasury Department have been pushing for years to eliminate accelerated tax depreciation and replace it with the depreciation schedules used in financial accounting. It is a battle over which entity will get the financial benefits associated with alternative approaches to amortization. Many believe a shorter amortization schedule favors jet owners and fosters higher economic growth while a longer amortization schedule increases taxes sooner, but slows the sale of jets and economic growth.
The situation is further complicated by having included the reauthorization of it in the President Obama’s stimulus bill. Complicating the situation even further, the American Recovery and Reinvestment Act enacted in February 2009, allowed some qualifying capital purchases to be written off in 2009, even more favorable than accelerated depreciation. The most commonly cited estimate of the benefits to the government is that this would increase tax revenues by $3 billion over ten years prior to considering any negative impacts that this change might have on the industry, i.e. fewer airplanes being made, sold, operated and maintained.
President Obama’s comments in his press conference on June 29, 2011 raised serious policy tax policy issues; however the references made to describe business situation was populist in nature, and may be a simulacrum. The characterization of business aviation was thin, and is at variance with actual practices. Is the “fat cat” characterization of corporate jets a simulacrum? The image imparted was that of a privileged few being pampered while others less fortunate suffered. While some of this may be true, for the most part, it is at variance with why and how corporate jets are used as documented in a Harris Interactive study. Some of the key findings are: “small companies operate the majority of business aircraft … managers and other mid-level employees are the typical passengers on business aircraft … a company’s business airplane use is wide-spread among employees … employees use their time on board company aircraft more efficiently and productivity than when they are in the office or on commercial flights … companies using business aviation typically operate a single aircraft … a large majority of business aircraft flights (80%) are made into secondary airports or airports with infrequent or no scheduled airline service.” The major reasons given for using business aircraft are, “support schedules not met with scheduled airlines, 64%, reach locations scheduled airlines do not serve, 19%, industrial or personal security, 6%, make connections with scheduled airline flights, 1%, and miscellaneous other reasons (cost effective, convenience, combining travel with company trips, flexibility, convenient for clients, personal travel, other), 9%. In addition, many flights incorporate passengers for humanitarian reasons. In 2008, 15,000 were documented, many of which were coordinated by organizations like the Corporate Angel Network, the Veterans Airlift Command, and others.
Balancing what is right for public and private concerns is a difficult task. Fiscal and tax policies have legitimate alternatives; but both a better served when more deliberately considered. Simplifications and simulacrum tend to complicate resolutions of these issues. It appears simulacrum, pragmatism and electoral politics are all involved.
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