Leading Democrats are being misleading with their language — the companies can't receive a break on taxes that were never collected. (Meg Kelly/The Washington Post)

“#GOPTaxScam philosophy: Let’s end tax benefits for colleges and students and give a tax break to private jet owners.”
— Democratic National Committee Chairman Tom Perez, on Twitter, Nov. 17

“A private jet tax break paid for by slashing health care. You can’t make this stuff up.”
— Sen. Jeff Merkley (D-Ore.), on Twitter, Nov. 16 

“Retweet if you would *not* benefit from a private jet tax break,”
— Sen. Kamala D. Harris (D-Calif.), on Twitter, Nov. 17

The Republican tax bill, which passed in the Senate during the wee hours of the morning on Dec. 2, contains a provision addressing the way private jets are taxed. Many on the left, who have criticized the GOP tax plan as a benefit to corporations and the super-rich and a burden for the middle class, have seized on this portion of the bill, characterizing it as a tax write-off for private jets.

One of the most widely shared claims came from Sen. Kamala D. Harris, who tweeted, “Retweet if you would *not* benefit from a private jet tax break,” on Nov. 17, linking to a Business Insider article with the headline, “The Republican tax bill has a provision that would end a headache for private jet owners.” Harris’s tweet prompted nearly 69,000 retweets and more than 35,000 likes.

The characterization fits Democrats’ narrative that the tax bill caters to the super-rich, but is it accurate? Let’s have a look.

The Facts

Harris’s claim that the Senate bill contains a provision for a tax break on private jets comes from the Business Insider article she linked to in her tweet. The article explains how the Senate version of the GOP tax bill makes tax changes to specific industries, noting that the “the Tax Cuts and Jobs Act would correct a long-running dispute between owners and operators of private jets and the IRS.”

Here is a breakdown of that long-running dispute.

If you’ve ever purchased a plane ticket, you’ve probably noticed that a portion of the ticket price pays for “taxes and fees.” One of those taxes is the federal excise tax, which is generally triggered when a person or entity provides an aircraft with crew and sells tickets to passengers. Currently, the excise tax is set at 7.5 percent, and it mostly applies to commercial airlines.

Private jets, which are owned by individuals or groups of individuals, have operated under a gray area with respect to the tax. When a person flies on his or her own private jet, the excise tax doesn’t apply. But many owners of private jets lend their aircraft to management companies that use them to charter flights for others. Someone participating in a private jet program such as NetJets pays a fee — say, $550,000 — for a share of a jet, which entitles them to a certain number of hours of flying time.

In 1958, the Internal Revenue Service’s Revenue Rule 58-215 exempted corporate-owned planes that are lent to airline companies from the excise tax.  But the rule didn’t provide total clarity for a new kind of private plane ownership in which individuals own a share of a private jet and lend it to management companies for chartered flights. In a 1998 lawsuit between the IRS and fractional sharing company Executive Jet Aviation, the U.S. Court of Appeals ruled that the excise tax could be charged on the company’s occupied hourly fee.

The obscure tax law made headlines in 2011, when NetJets filed a lawsuit against the IRS, alleging that the company was improperly assessed the excise tax on its maintenance fees. And in 2012, the excise tax was back in the news when the IRS chief council expanded the scope of the excise tax on private jet management companies and decided that they should also be charged a tax on their service fees. The decision, which applied retroactively, meant private jet management companies were subject to paying back taxes and penalties.

In 2013, after several management companies successfully appealed their audits, the decision was put on hold. In 2015, NetJets won its lawsuit when the court ruled the IRS could not retroactively impose the excise tax. In the end, in July 2017, the IRS decided to close the remaining audits.

But even though the IRS closed the audits, the companies could still be subject to taxes if the IRS decided to change course in the future. In 2015, amid the uncertainty, Rep. Patrick J. Tiberi (R-Ohio) introduced a bill in the House, exempting the companies from the tax. And in 2016, the measure was amended by House Ways and Means Committee and placed on the Union Calendar, which schedules money-related bills.

In February, Sen. Sherrod Brown (D-Ohio) introduced a companion measure in the Senate, which Sen. Rob Portman (R-Ohio) co-sponsored, but the bill did not advance. The Ohio lawmakers took interest in the taxes because Netjets is based in Columbus. [Note: an earlier version of this column incorrectly said Cleveland]. During the debate over the GOP tax bill, Portman introduced an amendment with the same effect. Ultimately, Senate Finance Committee Chairman Orrin G. Hatch (R-Utah) added the provision directly to the tax bill.

The Joint Committee on Taxation estimated the change was “estimated to reduce Federal fiscal year budget receipts by less than $500,000 for the period 2017-2026.” In other words, less than $50,000 a year, which is literally a rounding error in the federal budget. In contrast, the GOP tax bill is estimated to reduce revenue by as much as $1.5 trillion over 10 years.

When the Senate voted to pass the GOP bill, with the provision included, it settled the debate over whether the companies should be charged an excise tax on management fees. In short, the provision provides regulatory clarity to the IRS.

So how did these Democrats come to regard the bill as a tax break for private jets? Well, some media outlets jumped on the provision, calling it a tax break in their reporting. The Business Insider article Harris cites, however, doesn’t use the word tax break in its text, although it does refer to the provision as a “tax change.”

Still, other outlets, like the New York Times, the Wall Street Journal, and CNN offered a more nuanced take on provision. Nevertheless, the claim went viral on social media.

Lily Adams, spokesperson for Harris, defended the tweet in an emailed statement.

“After reading about this provision in The Washington Post, New York Times, CNN, and in a report from the Joint Committee on Taxation, we asked our followers whether they would benefit from this incredibly narrow protection to benefit a very limited set of companies. Nearly all of our followers, along with nearly all of Americans, will not benefit,” she wrote. “That is a fact.”

Update: Ray Zaccaro, a spokesperson for Merkley, responded to our request for comment at 11:17 p.m. on Dec. 6, saying he would send a statement in the morning. A previous version of this column said he did not respond. Here is his statement:

“As the Post analysis clarifies, the Republican tax bill eliminates a tax that the federal government tried to collect from private jet owners but which those jet owners fought in court,” wrote Zaccaro in an emailed statement. “While the Post may not see this as a tax break, to everyone else, this seems like another giveaway to the wealthy and powerful.”

Perez did not respond to requests for comment.

The Pinocchio Test

Several Democratic leaders claimed the GOP bill provided a tax break for private jets, adding to their case that the bill was heavily weighted to corporations and the super-rich. While the cause is well-intended, the characterization of the excise tax clause as a tax break is misguided. The provision provides regulatory clarity on a tax that has never successfully been imposed on private jet management companies. In short, the companies can’t receive a break on taxes that were never collected.

Harris defends her tweet, arguing that they are simply describing the provision as it was reported in the media as a tax break. But that was not the case with the article she retweeted — which also noted that the tax provision was valued at less than $50,000 a year. Moreover, several outlets offered a detailed take on the provision, making clear it the clause aimed to settle a decades-long dispute between the IRS and private jet management companies.

Still, these tweets are not alike. Harris earns Three Pinocchios for referring to a “private jet tax break” and suggesting wealthy owners would gain.


 

But Merkely and Perez each earn Four Pinocchios for falsely suggesting that education and health care were slashed to pay for this $50,000-a-year “tax break.”


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Share the Facts
2
1
5
Washington Post rating logo Washington Post Rating:
Three Pinocchios
“Retweet if you would *not* benefit from a private jet tax break,”
Twitter
Friday, November 17, 2017
Share the Facts
1
1
5
Washington Post rating logo Washington Post Rating:
Four Pinocchios
“#GOPTaxScam philosophy: Let’s end tax benefits for colleges and students and give a tax break to private jet owners.”
Twitter
Thursday, November 16, 2017

 

Share the Facts
1
1
5
Washington Post rating logo Washington Post Rating:
Four Pinocchios
“A private jet tax break paid for by slashing health care. You can’t make this stuff up.”
Twitter
Friday, November 17, 2017