The Misplaced Attack On Private Jets

In the 80's it was yachts, today it's private jets. The argument is the same, and it's still without merit.

For a time during the debt ceiling negotiations, private jets became a a target of President Obama’s when he harshly criticized the GOP over a depreciation tax credit given to owners of private jets, which he cited as an example of one of those items of “spending in the tax code” that the GOP should be willing to give up. It was an interesting issue for Obama to hang his hat on, considering that the tax credit at issue was put in place by  his own 2009 stimulus package. Additionally, it’s estimated that eliminating the credit would generate at most $2 billion in additional revenue over ten years, so it’s pretty small potatoes. Nonetheless, it was yet another example of the rich v. poor class warfare that Democrats are so adept at playing.

Today, that attack is being renewed. Matthew Yglesias links today to a report in The New York Times regarding an interesting new phenomenon, the number of kids from well-to-do families who are getting to remote summer camps by private jet:

For decades, parents in the Northeast who sent their children to summer camp faced the same arduous logistics of traveling long distances to remote towns in Maine, New Hampshire and upstate New York to pick up their children or to attend parents’ visiting day.

Now, even as the economy limps along, more of the nation’s wealthier families are cutting out the car ride and chartering planes to fly to summer camps. One private jet broker, Todd Rome of Blue Star Jets, said his summer-camp business had jumped 30 percent over the last year.

This weekend, a popular choice for visiting day at camps, private planes jammed the runways at small rural airports.

Officials at the airport in Augusta said 51 private planes arrived between Thursday and Saturday; on a normal day, they would expect just a few. The airport was so busy that one of its two public runways was closed so all the incoming planes would have someplace to park, said Dale Kilmer, operations manager for Maine Instrument Flight, which operates the airport.

“We have 50 to 60 jets up here in just that one day,” Mr. Kilmer said. “It’s a madhouse because they all leave at the same time, between 4 p.m. and 6 p.m.”

Ygleisas coments:

This, needless to say, is why progressive taxation is a good idea. Very rich people experience  a sharply declining marginal utility of money. If this kind of high-end consumption was more heavily taxed with the proceeds used to finance the consumption of the less fortunate, overall well-being could be easily enhanced.o

Yglesias isn’t necessarily talking about the tax credit that was the subject of the Presidents screed. He just seems really upset by the fact that there are people in American wealthy enough to be able to spend the money to send their children to a camp in the remotest part of Maine, and to charter a private jet to get them there. In the end, though, both arguments boil down to the same thing, a disdain for success and wealth and a belief that people don’t really have the right to spend their money they way they want to. If someone has been successful enough to do this, then who is the President or Yglesisas to judge them for it?

More importantly, though, this attack on private jets and spending money on luxuries bears a striking resemblance to a similar debate during the George H.W. Bush Administration when someone decided to impose a “luxury tax” on yachts:

President Bush, in his budget proposals, asked Congress to repeal the 10 percent luxury tax on yachts priced at more than $100,000 (and also on private planes that cost more than $250,000). The repeal, which Congress is likely to approve, would be retroactive to Feb. 1.

Since the tax took effect in January 1990, hundreds of builders of large and small boats have spoken of it as a stake driven into the heart of an industry already suffering from the recession, tighter bank rules on financing and fallout from the gulf war.

In the last two years, about 100 builders of luxury boats — recreational craft costing more than $100,000 — cut their operations severely and laid off thousands of workers. Some builders filed for protection from creditors under Chapter 11 of the Federal Bankruptcy Code.

Much as with the rhetoric directed against owners of private jets today, in the late 80s there were people in Washington who decided that people who bought yachts could afford to pay more for those yachts and that it was only “fair” that they pay their fair share in taxes. What they didn’t anticipate, though, is that increasing the price of a yacht would lead those people to decide that maybe they didn’t need to buy a new one this year. In the end, the people who ended up paying the cost of the ill-advised yacht tax weren’t the wealthy prospective yacht owners, but the companies that sold the yachts, the companies that built them, the people that worked for them, and all of the related industries that they relied upon to get their job done. There were no “proceeds….to finance the consumption of the less fortunate.” In fact, there were barely any proceeds at all, and the people who ended up getting hurt by this policy choice that was guided more by envy than economic common sense were people far less fortunate than either the yacht owners, or the Congressmen and Senators who passed the law. Does Yglesias really think it would be any different if we implemented his consumption tax idea?

One final point about the Times story, and Yglesias’s broader point, is brought up by this excerpt from the article:

Officials at the airport in Augusta said 51 private planes arrived between Thursday and Saturday; on a normal day, they would expect just a few. The airport was so busy that one of its two public runways was closed so all the incoming planes would have someplace to park, said Dale Kilmer, operations manager for Maine Instrument Flight, which operates the airport.

“We have 50 to 60 jets up here in just that one day,” Mr. Kilmer said. “It’s a madhouse because they all leave at the same time, between 4 p.m. and 6 p.m.”

At Sullivan County Airport in Bethel, N.Y., roughly 40 percent of recent flights have carried families heading to summer camp. Officials at Laconia Municipal Airport in Gilford, N.H., and Moultonborough Airport in Moultonborough, N.H., reported similar numbers.

At Robert Lafleur Airport in Waterville, which is close to many of the private camps in the Belgrade Lake region of Maine, the assistant manager, Randy Marshall, brought on two extra people to help handle the traffic last weekend.

As Maine’s Governor, Paul LePage, says earlier in the article this is big business for the state of Maine. All these private jets generate revenue for the airports, and tax money for the state, not to mention the additional revenue the camps and surrounding businesses get from increased business. All because some wealthy parents can afford to send their kids to camp on a plane. Why would anyone complain about that?

 

FILED UNDER: Economics and Business, Taxes, US Politics
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010. Before joining OTB, he wrote at Below The BeltwayThe Liberty Papers, and United Liberty Follow Doug on Twitter | Facebook

Comments

  1. Rob in CT says:

    I have to disagree with you on this Doug (other than agreeing that it’s a bit silly for Obama to have hung his hat on that particular tax preference, especially since it was introduced by the Stimulus bill he pushed for).

    Is this or is this not a tax break for private jets? Yes/No.

    Are tax breaks/loopholes/expenditures something tax reform should target? Yes/No.

    Within the realm of such things, can you really argue that this particular tax break is beneficial to the people of the USA? Is this a broad-based thing (such as the debateable mortgage interest deduction)? No, it is not. It benefits a small group who has no need of more benefits. Saying that is class warfare? Please.

    As such, it seems to me this the the worst sort of tax credit. And it’s small potatoes.

    The Yacht comparison doesn’t make sense to me. This tax credit has only been around for 2 years. Revoking it would suddenly devastate an industry? How has the private jet industry done pre-’09 and ’09-present? Has it expanded, added employees (here in the USA)? Can you actually make the case that lots of Americans would lose their jobs if this 2-year old tax credit was removed?

  2. Rob in CT says:

    One more thought (damn, time expired on my edit):

    If this was introduced by the Stimulus bill, wouldn’t it lapse anyway?

  3. Moosebreath says:

    “In the end, though, both arguments boil down to the same thing, a disdain for success and wealth and a belief that people don’t really have the right to spend their money they way they want to. ”

    Umm, no. It’s more like this is something that government should not be subsidizing. Supposedly libertarians are against the government intervening in the markets. I guess you think that doesn’t apply when it’s the rich who are subsidized. (see how easy it is to impugn motives when you mindread?)

  4. sam says:

    Oh, I dunno. I look on the private jet thing as a synecdoche for all the goofy things in the tax code. Especially goofy things in the interest of folks who have a lot of money. If and when the tax code is ever rationalized (=removing all the goofy things referred to), expect howls of protest from some quarters when their favored tax break/loop hole is sent to the wall.

  5. @Rob in CT:

    The tax credit that President Obama spoke of is entirely different from the issue that Yglesias raises, which is what I was responding to.

    The “tax credit” that Obama speaks of is, basically, a change in the depreciation schedule for private aircraft that allows businesses to spread out acquisition costs over a longer period of time. Effectively it operates as a “tax credit” because it allows them to tax a depreciation deduction for (slightly) longer period of time. As I noted, it is not a major part of the tax code and eliminating it would generate, at most $2billion over ten years.

    Yglesias is advocating a consumption tax, which makes his proposal directly comparable to the Yacht Tax.

  6. @Moosebreath:

    If Obama wants to go after tax breaks, the ones that favored industries and unions get would be a good place to start.

  7. Rob in CT says:

    Actually, having read your link about the Stimulus, it seems this tax break has been in place since 2001 (as part of an effort to help the industry recover post-9/11, apparently). So it’s been around longer than I initially believed. The relevant comparison, then, is how this industry was doing pre-2001 and post-2001, understanding of course that the economy was generally strong in the 90s and generally weak in the 00s.

    As for Yglesias, sorry, I didn’t click through to his article, so I didn’t realize he was talking about doing more than simply rolling back the depreciation schedule to the pre-2001 version. I do not think it’s a good idea to tack on an additional sales tax to private jets (CT recently did that with luxury cars, which I doubt will do much good).

  8. Boyd says:

    If this kind of high-end consumption was more heavily taxed with the proceeds used to finance the consumption of the less fortunate, overall well-being could be easily enhanced.

    This emphasizes Mr Yglesias’ belief that wealthy people only have their riches at the sufferance of the government.

  9. WR says:

    @Doug Mataconis: Right. Tax union workers, who are middle class for the most part. Don’t tax the rich. Because. Because.

    Because why again, Doug? Why is it so crucial to make sure those who have less money pay more than the ones who have transferred the rest of the nation’s wealth into their own pockeets over the last thirty years? I’m sure there’s a good Libertarian reason for it.

  10. WR says:

    @Boyd: As opposed to the Republicans’ idea that we only have a nation at the sufferance of wealthy people.

  11. sam says:

    @Boyd:

    wealthy people only have their riches at the sufferance of the government.

    Look, Boyd, as a matter of brute fact, that is true. While else would certain folks be going apeshit at the thought the government might make some incursions on wealth? (Please do note that I am not saying it ought to be true, only that it is true.)

  12. Dean says:

    I saw the impact of railing at private jets firsthand at my previous employer. Once Congress started calling out the auto companies’ CEOs for flying in on corporate jets, the US private jet manufacturers saw an immediate decrease in orders. Many existing orders were cancelled. Guess who took the brunt of the hit–union workers who lost their jobs due to diminished demand.

    If you want to stimulate the economy, stimulate consumer spending of all types. If the rich want to spend their money on very expensive products, why would the government do anything to discourage it? It seems as though it’s more important to many that we somehow punish the wealthy for being wealthy, rather than encouraging them to spend their money.

  13. Boyd says:

    @WR: I don’t give a rat’s patootie what Republicans think. I know you think you made a clever turn of phrase, but on top of it being nonsensical, it’s also a non sequitur.

    @sam: Sorry, Sam, I’m not really sure what you’re saying there. I think you’re saying that the reality is that none of us has any money except at the sufferance of the government, right?

  14. Boyd says:

    @Dean: Well said. When the rich spend money, there are a lot of folks who prosper as a result.

  15. Liberty60 says:

    @Boyd:

    wealthy people only have their riches at the sufferance of the government.

    Wealthy people gained their wealth with the assistance of the government.

    The wealthy, even more than the poor, benefit from the goods and services that the government provides.

    For example- the wealthy owners of Wal-Mart benefit from taxpayer created ports and highways that allow them to import and deliver their goods as well as taxpayer created Coast Guard that protects them in transit;

    Their stores are protected by taxpayer created police and fire departments, and utilize taxpayer created water. electricity, and sewer infrastructure.

    When a crime is committed against Wal-Mart, or when it is defrauded, it is the taxpayer created court system that enforces contracts on behalf of Wal-Mart, at no cost to them;

    Most importantly, Wal-Mart depends for its very existance on a large and comfortable middle class that buys its products.

    There is a reason why Wal-Mart operates in middle class America, not the lawless and impoverished 3rd World.

  16. Boyd says:

    @Liberty60: Indeed, the government decided that the Waltons of Arkansas were going to become wealthy and John Doe would be destitute, homeless and wandering the streets of Detroit.

  17. OzarkHillbilly says:

    Nonetheless, it was yet another example of the rich v. poor class warfare that Democrats are so adept at playing.

    If the Dems are so good at it, why are the rich winning?

  18. sam says:

    @Boyd:

    I think you’re saying that the reality is that none of us has any money except at the sufferance of the government, right?

    No. I’m trying to jog your memory to when the government had marginal tax rates as high as 90%. That’s what I meant by “brute fact”.

  19. Boyd says:

    @sam: I remember and understand the facts you’re mentioning, Sam, I just can’t perceive your point. Sorry if I’m being a little dense.

  20. Liberty60 says:

    @Boyd:

    Indeed, the government decided that the Waltons of Arkansas Goldman Sachs were going to become wealthy and John Doe Lehman Bros. would be destitute

    I see your snark and raise you a fact.

  21. Boyd says:

    @Liberty60: But you had to change the subject to bring up your fact.

    The discussion hasn’t been about the lunacy of the Wall Street bailouts, it’s been about Mr Yglesias’s apparent position that all money belongs to the government, so the government has the power to withhold as much money as it wants from whomever it wants.

    So if you want to talk about the topic at hand, join in. Otherwise, prepare to be ignored (speaking only for myself, of course).

  22. An Interested Party says:

    If the rich want to spend their money on very expensive products, why would the government do anything to discourage it?

    I would agree that the government shouldn’t discourage this type of spending…at the same time, there is nothing wrong with the government taxing (not punishing) this type of spending…

  23. Boyd says:

    @An Interested Party: But the unanswered question is why should this type of spending be singled out for additional taxation?

  24. As Warren Buffett pointed out recently in an interview about the jet thing, jet owners do not get to depreciate personal use of the jet, only business use. Jetting to summer camp elicits no deduction. Buffett said that he own fractional shares in two jets, one for personal and one for business use. He said he pays $1,000,000 per year in taxes on the personal jet share that he would not pay if the law permitted deductions for it as it does for the bizjet.

    He also pointed out that all the Obama stimulus bill did was allow accelerated depreciation of business-class jets over a five year schedule, rather than a seven-year schedule as they were depreciated before. So bizjets have always been “subsidized.”

    Obama’s hypocrisy is that if he gets repealed the very law that he put into place, the deductions will still be there, just amortized over seven years again rather than five.

  25. Moosebreath says:

    Boyd,

    “why should this type of spending be singled out for additional taxation? ”

    It’s not — all that’s being proposed is that this type of spending not be subsidized, by getting quicker depreciation schedules (and thereby creating bigger tax deductions) than other similar assets.

  26. Moosebreath says:

    Doug,

    “If Obama wants to go after tax breaks, the ones that favored industries and unions get would be a good place to start. ”

    Because they are less distorting of the market than these tax breaks are? Please explain why.

  27. Boyd says:

    @Moosebreath: You’re one subject behind, MB. I’m talking about the Yglesias-advocated luxury tax, not the accelerated depreciation on bizjets.

  28. Why should the government subsidize private jet purchases and why should the government be using the tax code for social engineering and corporate welfare in the first place?

  29. Ben Wolf says:

    @Boyd

    Yes, in fact no one has money without government. You need only look at the non-existent list of successful private currencies to see it’s true.

    Quite frankly, private property of any kind doesn’t exist without government.

  30. Boyd says:

    @Ben Wolf: And that’s where we differ, Ben. Private property existed long before government.

  31. jukeboxgrad says:

    Liberty60:

    The wealthy, even more than the poor, benefit from the goods and services that the government provides.

    Indeed. Adam Smith pointed out that government tends to protect the interests of the rich. He said those who benefit from “inequality of fortune” depend on the government to protect that inequality.

    The GOP fantasy is to get rid of the whole government, except for the department that hires Blackwater to chase the poor people off their lawn.

  32. Ben Wolf says:

    @Boyd: Private property is a creation of law and laws are established by governments. Without government there is no property to which you have a “right”. A thing simply belongs to whomever is strong enough to take it.

    From where do you derive the belief property predates government? I’m not aware of any basis in historical fact for this.

  33. Boyd says:

    @Ben Wolf: So, according to you, the concept of “this is my stuff” didn’t exist until someone decided to create a government. And so, I can’t respond without characterizing your political beliefs, and that’s uncomfortably close to ad hominem, so I’ll just stop talking now.

  34. Ben Wolf says:

    @Boyd: What’s clear is that you didn’t bother to think about what was written, you just reacted.

    Find me one place which has both strong private property rights and no government. Find one historical example.

  35. jukeboxgrad says:

    boyd:

    So, according to you, the concept of “this is my stuff” didn’t exist until someone decided to create a government.

    The idea may have existed as a “concept,” but it wasn’t much of a practical reality in the absence of government. Adam Smith explained this a long time ago:

    Wherever there is great property there is great inequality. For one very rich man there must be at least five hundred poor, and the affluence of the few supposes the indigence of the many. The affluence of the rich excites the indignation of the poor, who are often both driven by want, and prompted by envy, to invade his possessions. It is only under the shelter of the civil magistrate that the owner of that valuable property, which is acquired by the labour of many years, or perhaps of many successive generations, can sleep a single night in security. He is at all times surrounded by unknown enemies, whom, though he never provoked, he can never appease, and from whose injustice he can be protected only by the powerful arm of the civil magistrate continually held up to chastise it. The acquisition of valuable and extensive property, therefore, necessarily requires the establishment of civil government. Where there is no property, or at least none that exceeds the value of two or three days labour, civil government is not so necessary.

  36. steve says:

    Prior to democracies, monarchies were the norm. Property was usually owned by royalty. Even when land was owned by non-royalty, it could easily be confiscated by royalty with little recourse for the non-royals.

    Steve

  37. Ben Wolf says:

    Ownership is a state of legality indicating a given person or group of persons have a right to a specific piece of property. As I’ve stated before, law is a creation of government.

    The concept of “mine” outside a system of property laws isn’t ownership, it’s simply the exercise of control. In these circumstances a thing belongs to the strongest force able to make a claim to it. That gang over there, (being better armed and more numerous than yourself) can take your home from you because no government exists to create and enforce laws establishing your ownership of it.

    A bear may establish a given territory, but that lasts only so long as a stronger bear doesn’t force the weaker out. Without law the human condition is fundamentally the same.

  38. Robert Levine says:

    The preferential tax treatment in question goes back many years. I’ve yet to hear an intellectually solid justification for it. Certainly the idea that the children of people should ride to summer camp in private jets that receive preferential tax treatment over commercial airliners isn’t one.

  39. Boyd says:

    @Ben Wolf: I only respond to prevent your false logic from standing unrefuted, Ben. From what you’ve written, it appears you believe that rights, including property rights, are created by the government. I maintain, along with our founding fathers, that government is merely a guarantor of pre-existing rights. My rights exist without regard to any government, and if they’re violated by a government, that still does not diminish their existence as rights.

  40. Boyd says:

    @Robert Levine: Your position that “children of people should ride to summer camp in private jets that receive preferential tax treatment” has been shown to be untrue by Don Sensing above.

  41. jukeboxgrad says:

    My rights exist without regard to any government

    That depends what you mean by “exist.” Without government to protect them, your property rights exist only in your mind, or only as long as you are bigger than the other guy who wants your stuff.

  42. Herb says:

    “….a disdain for success and wealth and a belief that people don’t really have the right to spend their money they way they want to.”

    Bull.

    It’s a disdain for people who can afford to fly a private jet, but then complain they can’t afford to pay taxes.

  43. SteveP says:

    I was a rigger on luxury yachts when the yacht tax was implemented. The wealthy people who were the supposed targets of the tax simply put off buying new toys. Those of us who built and maintained the yachts lost our homes. Even those that didn’t lose their homes paid a high price for the Democrats’ class warfare. That’s always the way it is. The leftist’s targets aren’t the ones who get hurt. It’s the middle class working people who provide services to the wealthy that get screwed.

  44. Ben says:

    @Boyd:

    Boyd: yes, rights “exist” outside of a government. However, they aren’t enforceable as regards to other people infringing on them without the government, unless you are willing to live in a society of tribal warfare and vigilantism.

  45. jukeboxgrad says:

    The wealthy people who were the supposed targets of the tax simply put off buying new toys.

    Has it occurred to you to wonder what they did with that sum of money (i.e., the money that they would have spent “buying new toys”)? They probably didn’t put it under their mattress. Rather, they probably put it (or left it) in their investment accounts. Which means that money wasn’t idle. Most likely some business somewhere was using it to create a job for someone (maybe even someone you know).

    When the rich decide to “put off buying new toys,” the net result is that money is invested in capital assets, instead of toys for the rich. An economy that builds lots of factories is much stronger and healthier than an economy that builds lots of toys for the rich (and, more generally, an economy that uses money for investment is much stronger than an economy that uses money for consumption). Except from the perspective of someone whose job was to help the rich enjoy their toys, but that’s a narrow and short-sighted perspective.

  46. superdestroyer says:

    @sam:

    Because the richest Americans are Democrats and want a large government around to hamstring their competitors. and so that they can use the government to rewards their friends and punish their enemies.

  47. john personna says:

    While it might be silly to attack yachts or private jets, it is much sillier for them to gather a huge political defense.

    I suspect that the political advantage for the Democrats comes entirely from the spectacle of Republican response. They know it isn’t about the jets, it’s about Republicans refusing to budge on something which benefits only the top few.

    I mean think about how it plays: “The debt is $14 trillion, the unemployment rate is 9.2%, and we must make sure private jet owners feel no twinge between appetizer and entrée.”

  48. john personna says:

    (To convince me otherwise, you’d have to show me that this change would actually harm jet owners beyond “slight annoyance.”)

  49. john personna says:

    The 400 Richest Americans Pay An 18% Tax Rate

    No, the jet owners are chortling between their appetizers and entrées.

  50. WR says:

    @SteveP: That’s why we must continue to transfer all our wealth to the top one percent, because maybe they’ll give some of us a job!

  51. mick says:

    @SteveP: why do i not believe your sad story?

  52. mick says:

    stevep, did the bad bad sailor touch you in a place that your bathing suit covers.? there, there. let the healing begin…

  53. An Interested Party says:

    The 400 Richest Americans Pay An 18% Tax Rate

    Well, that’s part of the budget mess right there, isn’t it? And yet, whenever anyone tries to raise this point, we hear cries of “class warfare!!!” and “envy!!!” from the usual suspects…yes, it is much better to balance the budget by gutting social programs rather than raising the tax rate on these people…