Wednesday, August 10, 2011

Business jets, wait, we mean corporate jets

Ask any small business owner with a very slim profit margin, what they fear most and you will likely hear two things - the sagging economy and tax increases.  Although there are no immediate tax increases noted for the near future, the talk of some "loop hole" closings have us worried.  Loop holes like taxes on corporate jets or business jets (their name seems to depend upon which political stance you take).


Special thanks to Wallace Shakleton
(twitter - @Wwshack) and 
for the photo usage.
As Washington, D.C. wrangles over the impact of federal spending, public services cuts, revenue building (aka tax increases), and the cut/ cap/ balance approach, most of us are left scratching our heads.  It is simple mathematics.  We have borrowed too much and not saved enough.  If you budget $15,000 to buy a new car, and then spend $25,000, that is not a budget.  Why is it so hard for Washington to understand this concept? Even a nine year old could understand that the piggy bank is empty, so no ice cream today.
So how do we fix this?
One of the solutions that President Obama has tossed around is closing "loop holes" on things like corporate jets.  You may not know what a corporate jet is, since until lately, they were known simply as business jets.  Since 1/2 of the USA now thinks that corporations are the ones to blame for everything from global warming to the failing economy, it seems only just to vilify them further.  Change "business jets" to "corporate jets" and vilify the corporate jets they ride in as well.  Bloomberg estimates that closing this loop hole would net around $3 Billion Dollars, hardly the Trillions that we need.


If you listened to any of the nearly constant mention by President Obama of the corporate jets, you might think that the tax breaks received were directly responsible for the $14.1 Trillion Dollars National Debt. 
Take a look at this video as well which details some of the vilifying of business jet owners.  You might even come to the conclusion that grandma might not get her Social Security check because there are too many corporate jets out there.  Simply not true.  Not to mention the thousands of people who get a paycheck each month for piloting, maintaining, and manufacturing these business jets.  With so few manufacturing jobs left in this country, you would think that we would try to hang on to the few we have left making things we make well, like business jets.
We cannot help but look for the next "loop hole" that the White House is going to try to close.  Let's examine our thought process by placing ourselves into the shoes of a small business owner - We need a printer.  We are thinking about buying a new printer, but printers are kind of expensive.  Then, we remember that we can "write off" the printer on our business taxes since we plan to use the printer for business purposes.  What does this write off mean?  It means that if we spend $100 on a printer, we can reduce our tax responsibility by $100.  So, if we make $1000 in profit this year, we will only pay taxes on $900 of it.  That is the only advantage (other than having a new printer).  If the government closes this "loop hole," then what is our motivation to go out and buy that printer if we are still going to be taxed on the full $1000, in addition to the local tax we are going to pay for buying the printer?  Now, think of that on a larger scale, like buying a $1,000,000 machine and hiring four employees to run the machine. 
This is not some crazy science.  This is simple math.  When a company fears a tax increase or loop hole closing, they tend to wait out those good or services until absolutely needed. 
Here is another fact.  According to the US Census, there are 311,910,995 people living in the USA as of AUG 4th, 2011.  If we raised taxes on every man woman and child by $1,000 per year, that is still only going to provide just over an additional $311 Billion Dollars.  That seems like a lot of money, until you compare it to something a lot larger.  According to the website http://www.federalbudget.com/ the US Government spent over $386 Billion Dollars on the interest alone of the over $14 Trillion Dollar National Debt up to 30 June 2011.  That's right, just the interest on the debt is more than we could raise by giving an extra $1,000 per person today.  
My point is this - If the US Government has done such a poor job of spending the Trillions of dollars of taxes we pay in each year, why would we simply give them any more money to spend?  It seems to me like the US Government has officially kicked the can down the road as another debt ceiling increase is likely if there are no real spending cuts.
Who do we have to blame?  FDR said in his first inaugural address that the "only thing we have to fear, is fear itself."  It seems with the White House, Republicans, Democrats, Tea Party and special interest groups all blaming each other, we leave you with our newest Bad Money quote, "the only thing we have to blame, is blame itself."

Do not let the hype around business jets and corporate jets fool you into Bad Money decisions.

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