Tax loopholes and corporate jets

It seems like everyone is talking about "tax loopholes" these days, on both sides of the aisle, with President Obama making accelerated depreciation of corporate jets into a symbol of everything that he believes is wrong with such "loopholes."

In the CNBC clip above, Dan Hubbard of the National Business Aviation Association notes that in a recent speech the president singled out corporate jets eight times in twenty minutes. The CNBC reporter points out that the "loophole" in question (accelerated depreciation for equipment purchased by corporations, equipment which includes private jets) was signed into law by the president himself in his own stimulus plan of 2009, although the idea was first enacted by Congress after 9/11 almost ten years ago and was enacted again in 2003.

While the jet industry spokesman gives plenty of coherent arguments why his industry's "tax loophole" should be spared from scorn and criticism, we would argue that there is a bigger issue here, and that is the principle of why we as Americans ever enacted a tax system that invites so much "engineering" in the first place. In fact, we would argue that the current debate exposes everything that is wrong with a progressive tax system that awards deductions for those industries and causes which can convince lawmakers that they are more worthy of special tax incentives than others.

We have written many times before about the fact that there are always consequences (often unintended consequences) whenever the government decides to tilt the playing field for the benefit of one player or another -- see for instance "Christina Romer and the strong versus weak dollar debate" or "The ugly tomatoes of protectionism" or "Government interference, Wall Street bonuses, and unintended consequences."

We would like to see a flat tax which eliminates all the arbitrary tax breaks awarded by politicians to producers of ethanol, or producers of biodiesel, or drivers of hybrid cars, or those who own homes rather than renting them, or those who loan money to municipalities by buying tax-free bonds, or any of the entire host of "loopholes" that have been enshrined in the tax code over the decades. However, we fear that politicians on both sides of the aisle are generally unwilling to remove the "loopholes" in the tax code that benefit one constituency or another.

While we believe it is hypocritical of the president to attack loopholes that benefit owners of corporate jets when he signed those loopholes into law in the first place, we believe that such loopholes are no more distasteful when they benefit private jets than when they benefit any other industry. This is an aspect of our convoluted tax code that more citizens should understand.