New Dogfight Between Obama and Private Jet Industry

[gret]

New Dogfight Between Obama and Private Jet Industry
WEALTH, MILLIONAIRES, BILLIONAIRES, INSIDE WEALTH: TAXES, BUSINESS NEWS
By:Robert Frank | CNBC Reporter & Editor
CNBC.com | Wednesday, 6 Feb 2013 | 1:52 PM ET

The president is taking aim again at private jets.

As part of the debt talks with Congress aimed at closing tax loopholes, Barack Obama is calling again for eliminating what he calls "tax breaks for private jet owners." The message recalls Obama's 2011 crusade in which he told Americans, "I think it's only fair to ask an oil company or a corporate jet owner that's doing so well to give up that tax break. I don't think that's real radical."

The private jet industry disagrees. In a statement, the National Business Aviation Administration said the industry employs 1.2 million Americans and generates $150 billion in economic activity. Closing the loophole, they said, would "not yield meaningful progress" in the debt efforts.

The tax break Obama is targeting relates to the accelerated depreciation of jets used for business purposes. Current tax law allows companies to write off the cost of their planes over five years, rather than the seven years allowed for charter and commercial planes.

"The White House's rhetoric about general aviation depreciation ignores established facts and long-standing tax policies related to business airplane ownership and use, does almost nothing to seriously address the nation's debt, and has the potential to harm a great American industry in the process," NBAA President Ed Bolen said in a statement.

The NBAA added that the private-jet business is still struggling after the crisis and could take "several years" to recover.

Studies show that closing the loophole would only generate about $3 billion over 10 years.

Senate Minority Leader Mitch McConnell called the corporate-jet proposal "a cheap stunt and it certainly won't shrink the deficit or increase jobs." Others point out that Obama is attacking private-jet owners while himself enjoying the ultimate private jet – Air Force One.
© 2013 CNBC.com

URL: http://www.cnbc.com/100439712

 

[imacdog]

Obama won't be happy until we're all riding bicycles. Except for him of course, he can still use his sweet private 747.

 

[kf4amu]

Get rid of the income tax and you close that loophole. Deal.

 

[gret]

Your NBAA dues hard at work.

Congressional taxation and economic studies show that bonus and depreciation benefits do not impact a buyer’s decision. (If you want the study, I will post it but I read on November 17th and I have to find it again.)

Pick another fight…you’re fighting windmills…you’re dating Lennay Kekua…you don’t know what you are doing!

 

[Flying Illini]

Your NBAA dues hard at work.

Congressional taxation and economic studies show that bonus and depreciation benefits do not impact a buyer’s decision. (If you want the study, I will post it but I read on November 17th and I have to find it again.)

Pick another fight…you’re fighting windmills…you’re dating Lennay Kekua…you don’t know what you are doing!

It sucks that the NBAA is being forced to do this. It absolutely impacts the decision to buy or not.


Sent from my iPhone using Tapatalk

 

[Sparse]

Your NBAA dues hard at work.

Congressional taxation and economic studies show that bonus and depreciation benefits do not impact a buyer’s decision. (If you want the study, I will post it but I read on November 17th and I have to find it again.)

Pick another fight…you’re fighting windmills…you’re dating Lennay Kekua…you don’t know what you are doing!

post it.

 

[gunfyter]

Get rid of the income tax and you close that loophole. Deal.

:beer:

 

[gret]

post it.

Will do.

 

[BushwickBill]

How ami gonna buy my Gee Five!

http://youtu.be/6e_Z6wUnPXA

 

[gret]

Ineffectiveness of Bonus Depreciation to Stimulate Economic Growth

CRS Report for Congress (discussion starts on page 10)

​

http://www.nationalaglawcenter.org/assets/crs/RL31852.pdf

Bonus Depreciation Tax Cut Unlikely To Provide Effective Economic Stimulus

​

http://www.cbpp.org/cms/index.cfm?fa=view&id=579

 

[G4dude]

Your NBAA dues hard at work.

Congressional taxation and economic studies show that bonus and depreciation benefits do not impact a buyer’s decision. (If you want the study, I will post it but I read on November 17th and I have to find it again.)

Pick another fight…you’re fighting windmills…you’re dating Lennay Kekua…you don’t know what you are doing!

Congress said the same things when it voted to impose a luxury tax on yachts. It almost killed the industry, and Congress quietly repealed the tax.

 

[Sparse]

Ineffectiveness of Bonus Depreciation to Stimulate Economic Growth

CRS Report for Congress (discussion starts on page 10)

​

http://www.nationalaglawcenter.org/assets/crs/RL31852.pdf

Bonus Depreciation Tax Cut Unlikely To Provide Effective Economic Stimulus

​

http://www.cbpp.org/cms/index.cfm?fa=view&id=579

I think the NBAA has a better feel of what stimulates a buyers decision to purchase an aircraft not some bureaucrats in Washington. I thought they learned their lesson with the luxury tax.

 

[NJAowner]

In most cases people and business who have decided to take the plunge and expense of private aviation will do so regardless of whether the jet can be written off in 5 or 7 years. It is like large charitable donations -- when someone donated $10MM for a new wing to a hospital or college, they do it for chartitable reasons -- the tax deduction is secondary.

In some cases accelerated depreciation may accelerate the purchase of a replacement aircraft. Also, the accelerated depreciation is most often used by private companies, not the Fortune 100 types that have the largest flight departments -- depreciation is an expense which trickles down to reducing net income and earnings per share, so for many public companies spreading out the depreciation is favorable. On the other hand, private companies are more concerned with reducing taxable income and will be in favor of the quickest depreciation schedule.

Don't get me wrong -- it is very, very nice to have accelerated depreciation as a private company. But the vast majorityu of them would still utilize private aviation regardless of whether the write off was 5, 7 or 10 years.

 

[gret]

I think the NBAA has a better feel of what stimulates a buyers decision to purchase an aircraft not some bureaucrats in Washington. I thought they learned their lesson with the luxury tax.

Wish this was true, but if you look at the leadership of the NBAA and the immediate past president at NATA, both were/are long time Washington bureaucrats. New president at NATA has a practical background flying for Delta I believe.

 

[rajflyboy]

Greg voted for Obama

 

[gutshotdraw]

Greg voted for Obama

Whoever Greg is, there are two possibilities:

1) Greg is a kind, considerate soul who truly believes the best way to help the poor, the unemployed, the sick, and the oppressed is larger and ever expanding government at every level and the rising taxes that must accompany that government growth;

Or

2) Greg is a delusional, angry, get-even-with-em moron willing to ignore recorded human history and reams of statistical data that prove this Administration's view on the role of government NEVER results in the financial and personal success of the individual OR the society but instead ultimately results in widespread misery, poverty, and malaise.

 

[gret]

Yeah...that Greg guy is a real idiot!

 

[rumrnr78]

Whoever Greg is, there are two possibilities:

1) Greg is a kind, considerate soul who truly believes the best way to help the poor, the unemployed, the sick, and the oppressed is larger and ever expanding government at every level and the rising taxes that must accompany that government growth;

Or

2) Greg is a delusional, angry, get-even-with-em moron willing to ignore recorded human history and reams of statistical data that prove this Administration's view on the role of government NEVER results in the financial and personal success of the individual OR the society but instead ultimately results in widespread misery, poverty, and malaise.

I vote for #2!

 

[G4dude]

Whoever Greg is, there are two possibilities:

1) Greg is a kind, considerate soul who truly believes the best way to help the poor, the unemployed, the sick, and the oppressed is larger and ever expanding government at every level and the rising taxes that must accompany that government growth;

Or

2) Greg is a delusional, angry, get-even-with-em moron willing to ignore recorded human history and reams of statistical data that prove this Administration's view on the role of government NEVER results in the financial and personal success of the individual OR the society but instead ultimately results in widespread misery, poverty, and malaise.

I vote for #1, with the results of #2. These folks have the best intentions, but the consequences of their policies are devastating. Greg, whoever you are, stop voting that way!

 

[AirCobra]

While no big fan of President Obama's policies, I have to agree that tax write offs have little or no bearing on the decision for a wealthy person or corporation to purchase a business jet. I have been flying corporate for seven years and I would say the prime motivating factors for business jet purchases are convienience coupled with status. It seems to me as with houses, people will purchase the biggest jet they can afford regardless of whether or not it makes sense to fly a G-550 or Global Express with one person it 150 miles. I don't think the purchase of these aircraft hinged on a tax write off.

The wealthy stay wealthy by having batteries of orgnaizations, lobbyists, and lawyers working full time to protect their interests always coupled with some idle threat. That is why they pay a lesser percent in taxes on the purchase of a jet or yacht then you or I will if we bought a Chevy.

When I flew Part 135 I used to hear idle threats all day from wealthy people against their staff, the FBO, the car service, sometimes my company, but it was usually all bluster. This I beleive is just more of the same.

 

[gunfyter]

I guess that's why John Kerry parks his boat in Rhode Island instead of Mass. Taxes don't matter to the rich ....

 

[imacdog]

Or why Hollywood loves filming in Canada.....

 

[G4dude]

Or why Hollywood loves filming in Canada.....

And North Carolina...

 

[NJAowner]

I guess that's why John Kerry parks his boat in Rhode Island instead of Mass. Taxes don't matter to the rich ....

Taxes do matter. These examples are exploiting the inefficiencies in multijuridictional taxing system. But I woud tend to say that if RI had the same taxes as Mass., John Kerry would still have a boat.

 

[AirCobra]

And North Carolina...

Yet they still make the majority of films in Hollywood. It is also not solely about taxes either. The Canadian government actually doles out money to film in Canada, and although Toronto often doubles for New York, most movies are still not shot in Canada, so I don't think you have much of a point.

 

[AirCobra]

Shouldn't the NBAA's contention also work for second homes? Why do wealthy people have more than one home. Why would they double the property taxes they are paying. If taxes don't keep them from buying a beachfront home in the Hampton's, why would it stop them from purchasing an aircraft?

 

[gret]

The issue really isn’t about taxes, it is wasting resources of our industry groups pursuing an issue that is one of the least important things that they should be concerned about.

A brief recap of the issues-

Bonus depreciation simply means that you can take more depreciation in the first year than normal. To use a very simple example, a Part 91 aircraft is usually depreciated over 5 years. If an aircraft costs $20 million, you can depreciate the cost for tax purposes over the 5 years. Using the bonus rules, you would be able to take a $10 million deduction in the first year and then $2.5 million for the following 4 years. If the bonus depreciation isn’t available and you depreciate the asset on what’s called the straight line method, you would take a deduction in each of the 5 years of $4 million. In both cases, you receive $20 million deductions; the only difference is when you get them….or what is called a “timing difference”.

If the asset was acquired in what’s called a Section 1031 like kind exchange (which most are if the owner previously owned an aircraft) the depreciation deductions lose more of their importance. Won’t even try to explain this as it will bore you to tears, so you will have to trust me on this.

Most individual and smaller companies owning aircraft don’t receive the full benefits of their aircraft deductions because of their personal use. In many cases, the owners have given up even trying to fake out the IRS by claiming that trip to Aspen over President’s Day weekend was for business. In many cases, over 50% of the deductions related to an aircraft, including depreciation, aren’t even utilized and are lost forever. It all depends on personal use and you can draw you own conclusions by looking at your passengers and their destinations. Hint...busiest travel periods are Thanksgiving, year end holidays, and President's Day weekend....lot of business going on during these trips.

Aircraft depreciation deductions to companies such as Exxon, GE, JP Morgan etc. doesn’t even enter the purchase discussion. They don’t care!​

Again, the point is that giving somebody something they can’t use is meaningless and having the heads of our industry groups looking like fools makes it even worse.

This matter is pretty dry and probably doesn't deserve any attention...instead we should discuss union issues.

 

[NJAowner]

But Gret -- aren't most of the jet you describe actually acquired in a "reverse" 1031 like kind exchange utilizing a qualified intermediary?

As posted earlier, I agree with your point that that the bonus depreciation schedule results in very few sales.

 

[platinum750]

NJA supposed owner; for credibility issues please check spelling and grammer

 

[gret]

But Gret -- aren't most of the jet you describe actually acquired in a "reverse" 1031 like kind exchange utilizing a qualified intermediary?

As posted earlier, I agree with your point that that the bonus depreciation schedule results in very few sales.

Quick example of a an IRC 1031 exchange.

Company X bought their first plane 6 years ago and it cost $30 million. They owned it over 5 years so the cost basis is zero (the $30 million has been fully depreciated). X wants to buy a new plane for $40 million and the used aircraft has a value of $15 million.

X has two options, sell the old aircraft outright for $15 million…or complete a qualified 1031 exchange where the buyer of the old aircraft pays $15 million (via escrow) to the seller of the new aircraft and X comes up with boot of $25 million to complete the deal

If X had not completed a 1031 exchange and sold the aircraft to a third party, it would have to recognize a gain of $15 million and then could depreciate the new plane’s basis of $40 million….which is crazy.

Assuming a 1031 is completed, X would depreciate $25 million…cost of the new aircraft less gain deferred. X would not recognize any gain from the disposition of the old aircraft.

A brand new aircraft owner may consider the impact of bonus depreciation, but if Fat Cat Jack is buying a new G650 for $55 million and getting rid of his tired G550 (value probably $35 million via a 1031), Jack would only have an asset to depreciate of $20 million because he is deferring $35 million in gains from the fully depreciated aircraft. Fat Cat isn’t going to think twice about the depreciation consequences of the $20 million in boot. Especially if he is traveling from his New York apartment to the Palm Beach mansion on weekends December thru April…he can’t (or shouldn’t) be able to deduct the cash and deprecation expenses of these trips anyway.

Most major aircraft purchases are via 1031 exchanges and my point is that bonus depreciation is over emphasized with its influence in generating new aircraft sales because it is only calculated on the “boot” paid, not the entire purchase price.

My understanding of a reverse 1031 is that it is used when you take title to the new property prior to the sale of old property. I don’t believe this affects the tax consequences of the transaction.

As always, one should consult with a professional tax consultant, lawyer, Buddha/rabbi/priest, and your wife before doing anything.