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US Politics and Economy Analysis: Obama Talks Corporate Jets But Fails to Lead

On Wednesday, President Obama appeared at a rare press conference. According to The Hill, he was “animated” as he “scoffed at the notion that he has not shown leadership on raising the debt ceiling and cutting spending”. To show his resolve, amidst criticism from both Republicans and Democrats that the White House is not doing enough to resolve the debt-ceiling impasse, President Obama twice attacked the tax breaks enjoyed by the owners of corporate jets.

Yet, for the financially curious, the plane-bashing sign of resolve was no more than a diversion. Visit to find out what President Obama said at the conference, and you will find nothing about how ending the jet-set tax breaks will help reduce the deficit. The administration's official website does not even include "debt ceiling", "deficit reduction", or "budgets" in the Issues sidebar. In the one section, "Fiscal Responsibility", that comes close to addressing the problem, the administration puts at the top of their Progress list: “The President signed an Executive Order on government contracting to fight waste and abuse."

Perhaps a more comprehensive search of the site might find some detail, but it does not negate the observation that the President, despite the rhetoric, is failing to lead. He cannot be blamed for keeping details of his talks with congressional leaders secret, but he can be chided for not giving a full explanation of the importance of raising the debt-ceiling or cutting the nation's deficit, especially as the problem of America's long-term economic future is not going away any time soon.

This reality came out in stark relief last week with the publication of the latest Long-Term Budget Outlook by the Congressional Budget Office. This report projects what will happen to the national debt if certain budgetary measures are implemented. The word to take from their projections is "daunting", the future that America faces for the coming decade and beyond.

The politics over the next few weeks will not change that possibility substantially, however much Republicans manage to bring in spending cut or however much Democrats can wrest in revenue increases. The crucial driving factor in the increasing federal debt, which by the end of the year will be at its highest percentage of GDP (roughly 70%) since shortly after World War II, is summarised by CBO:

The retirement of the baby-boom generation portends a significant and sustained increase in the share of the population receiving benefits from Social Security, Medicare, and Medicaid. Moreover, per capita spending for health care is likely to continue rising faster than spending per person on other goods and services for many years (although the magnitude of that gap is very uncertain). Without significant changes in government policy, those factors will boost federal outlays sharply relative to GDP in coming decades under any plausible assumptions about future trends in the economy, demographics, and health care costs.

The CBO assesses that the US faces an “explosive” growth in debt:

Debt held by the public would exceed 100 percent of GDP by 2021. After that, the growing imbalance between revenues and spending, combined with spiraling interest payments, would swiftly push debt to higher and higher levels. Debt as a share of GDP would exceed its historical peak of 109 percent by 2023 and would approach 190 percent in 2035.

Kent Conrad (D-North Dakota) explained in a recent speech on the floor of the Senate:

Why does that matter? Because we have just had the definitive economic study done on deficits and debt and economic growth. It was done by Professor Carmen Reinhart at the University of Maryland...and Professor Ken Rogoff at Harvard. Here is what they concluded: "We examined the experience of 44 countries spanning up to two centuries of data on central government debt, inflation and growth. Our main finding is that across both advanced countries and emerging markets, high debt/GDP levels (90 percent and above) are associated with notably lower growth outcomes [for the future].

And is if that was not a gloomy enough prospect, in a concluding section on "The Impact of Growing Deficits and Debts" the CBO argues that its “projections in most of this report understate the severity of the long-term budget problem because they do not incorporate the negative effects that additional federal debt would have on the economy".

Remember that, even if the GOP manages to secure the $2 trillion in spending cuts it is looking for over the next decade, the debt is still going to continue to rise. The current debates concern America's short-term fiscal future and not the really tough decisions that need to be made over the medium- to long-term. The CBO ends its report by noting:

The sooner that medium- and long-term changes to tax and spending policies are agreed on, and the sooner they are carried out once the economy recovers, the smaller will be the damage to the economy from growing federal debt. Earlier action would permit smaller or more gradual changes and would give people more time to adjust to them, but it would require more sacrifices sooner from current older workers and retirees for the benefit of younger workers and future generations.

Perhaps President Obama --- while he plays the populist political game in demanding the elimination of tax breaks for corporate jets --- is trying his utmost behind closed doors to secure the significant changes the American economy needs. And it may be a little unfair to single out the president for the criticism that he is failing to lead; the executive can only push the legislature so far.

However, Obama's demeanour does little to suggest he takes the problem as seriously as the authors of the CBO Report. He is flunking his responsibility to take the initiative in explaining to the public the magnitude of the issues at stake. When he talks corporate jets not entitlement spending reform, he only makes it harder for those voices in Congress who are struggling to lead responsibly to be heard. If the president does not appear to be taking them seriously --- to my knowledge, President Obama has not once publicly acknowledged or encouraged the efforts of Sen. Conrad to build some sort of bipartisan consensus on the deficit --- why should anyone else?

For the record, this is how CQ Today explained the utter irrelevance of tax breaks for corporate jets to the deficit-reduction issue:

Last week, House and Senate Democratic leaders called for taking away current tax benefits for corporate planes, which can be depreciated over five years. The normal depreciation period for commercial airliners is seven years. Current law temporarily allows 100 percent depreciation in the first year for business equipment including commercial and general aviation aircraft, but that provision is scheduled to expire at the end of the year.

"Right now, corporate aircraft get a better depreciation schedule than commercial aircraft,” said Chris Van Hollen of Maryland, the top Democrat on the House Budget Committee. “That’s a result of powerful Washington lobbyists getting special deals for, you know, corporate jets.”

Lengthening the depreciation schedule for corporate airplanes could bring in some additional tax revenue in the short-term, but it would have little longer-term impact on the deficit since the full cost of most planes would still be written off by their owners.

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