Biden targets private jets in pursuit of tax revenue
The Biden administration is looking to the skies for government revenues and scrutinizing corporate jets as it tries to make big corporations pay more taxes and crack down on wealthy tax evaders.
From Taylor Swift to Fortune 500 CEOs, private air travel has been portrayed for years as an example of opulence and excess, putting it on the radar of Democrats who want to strip the tax code of incentives that promote its use.
Companies have long benefited from laws that allow them to amortize the cost of aircraft more quickly than commercial airlines and pay fewer fuel taxes. Included in the White House’s proposed $5 trillion in tax hikes were plans to target business aviation and increase scrutiny of executives who use company jets for private travel.
President Biden increased taxes on corporate jets during his State of the Union address this month and at a campaign event in Philadelphia last week, where he laid out his ideas for making big companies “pay their fair share.”
During a Senate hearing on Thursday, Treasury Secretary Janet L. Yellen planned to praise the Internal Revenue Service for launching a “new initiative to end corporate aircraft depreciation abuse,” according to her prepared remarks.
The ideas have quickly drawn opposition from the business aviation industry, which argues the proposals unfairly undermine U.S. companies that rely on private jets to more easily allow their executives to visit factories and remote offices.
“We have not seen any real justification for why an important and essential American industry is being targeted for tax increases,” said Ed Bolen, president and CEO of the National Business Aviation Association. “Proposals have been made, impressions may have been left and we would like to understand the facts behind them.”
Biden’s budget, which is unlikely to pass Congress, would hit corporate and private jet users in two ways.
It would increase the tax on jet fuel from 21.8 cents per gallon to $1.06 per gallon over five years. The money goes to the Airport and Aviation Trust Fund, which helps finance federal investments in the airport and airway system. The Biden administration argues that the current rate is too low because private jets represent 7 percent of flights handled by the Federal Aviation Administration but contribute only 0.6 percent of taxes into the fund.
The other proposal would focus on a lucrative tax break that would allow companies to quickly deduct the cost of their aircraft. Currently, a company can depreciate the cost of an aircraft over five years, instead of the seven-year period applicable to commercial aircraft. The budget proposed the same seven-year tax treatment for corporate and commercial aircraft, known as “bonus depreciation.”
The White House estimates that the proposals would raise $4 billion over 10 years.
“This is about leveling the playing field for the middle class by finally making big corporations and the wealthy pay their fair share – whether it’s cracking down on rich tax fraud or closing loopholes in corporate jet purchases – so that we can reduce the deficit and invest in the American people,” said White House spokesman Michael Kikukawa.
The White House proposals came just weeks after the Internal Revenue Service announced it would crack down on business jet owners who abused the tax code. It wants to prevent companies from claiming millions of dollars in deductions on planes that executives sometimes use for personal travel.
The investigation into corporate jet use will involve new data analysis tools that the IRS developed with $80 billion in funds allocated through the Inflation Reduction Act of 2022. The tax collector plans to launch dozens of new audits that will focus on large corporations, partnerships and wealthy taxpayers.
The tax law allows companies to deduct the costs of maintaining a business aircraft if it is used for business purposes. But many allow executives, shareholders and partners to use company aircraft for personal travel while continuing to claim the full value of those deductions.
The IRS audits will also include the planes’ wealthy passengers, who the agency says must report those trips as income. It is estimated that there are tens of thousands of corporate jets in the United States and that a significant portion of tax revenues are slipping through the cracks.
In a speech at American University on Monday evening, Daniel Werfel, the IRS commissioner, said the focus on business aviation was made possible by new funding the agency has received to upgrade its technology, allowing it to more rigorously analyze flight data.
“A more digital IRS unlocks our ability to audit improper debits for personal use of corporate assets, such as business jets,” he said.
Ryan DeMoor, head of aviation tax at MySky, said he doesn’t expect the IRS audits to yield as much missing tax revenue as the agency expects. He said many executives are required to fly on corporate jets even for personal travel, and argued that finance departments tend to be overly cautious in how they report aviation taxes because of the risk and costs involved in accounting for have the wrong end.
“They fall into the ‘fat cat executive’ narrative, which is just not the case,” said Mr. DeMoor, whose company helps companies manage their flight costs. “Why would a Fortune 500 company put themselves at risk by trying to save a little bit of taxpayer money on their flight department?”