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No, The American Recovery And Reinvestment Act Did Not Create The Tax Preference For Corporate Jets

By Matthew Yglesias  

"No, The American Recovery And Reinvestment Act Did Not Create The Tax Preference For Corporate Jets"

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President Obama, speaking today, sought to emphasize exactly how extreme congressional republican hostility to tax revenue is by repeatedly noting that they preferred defaulting on the federal government’s obligations to even closing a tax provision that subsidizes the use of corporate jets. Naturally, since current conservative orthodoxy is that all measures to raise tax revenue constitute job destroying tax hikes, it is in fact the case that the right opposes curbing tax subsidies for corporate jets. But since that’s embarrassing to them, some folks are putting out a new myth that the tax subsidy in question was created by the American Recovery and Reinvestment Act.

The truth is that, much as you would expect, the White House negotiating team isn’t nearly that stupid. The source of the confusion is that congress passed a “bonus depreciation” law in 2008 as an economic stimulus measure, and ARRA continued it. This depreciation is a broad (albeit temporary) provision that includes to a wide range of capital goods including both commercial and corporate aircraft. By contrast, the tax break at issue in the negotiations is a 1987 provision of the tax code that allows corporate jets to be depreciated over a five-year period rather than the seven-year period required for commercial aviation. This is not something Barack Obama created, not something Barack Obama has ever supported, and not anything that has anything to do with the stimulus bill. It is, instead, a small but real subsidy that distorts the economy at the margin by encouraging large firms to invest in corporate jets rather than paying for commercial airfare.

We may be in for a dozen rounds of this kind of myth-making. The White House has put on the table the idea that we should raise tax revenue without necessarily raising tax rates. That means closing loopholes. But congressional Republicans say they’re opposed to any increases in tax revenue. Now everyone knows that the tax code contains lots of unjustifiable loopholes, so the White House can gain a strong rhetorical upper hand by highlighting specific loopholes. Since the GOP has committed itself to defending each and every loophole no matter how absurd they’re going to need to engage in a lot of desperate smokescreens like this to avoid engaging directly with the core question.

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