Sorkin’s disingenuousness on corporate taxes

By Felix Salmon
March 27, 2012
Andrew Ross Sorkin has a mildly corrosive column on NetJets' tax issues today:

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Andrew Ross Sorkin has a mildly corrosive column on NetJets’ tax issues today:

At a time when the government is desperately looking to raise revenue, it is understandable that the I.R.S. would seek to wring additional dollars out of the private jet industry, but there has to be a better way than to do it through reinterpreting arcane rules in court. If Congress wants to apply the transportation tax to private jet owners — which would probably be applauded by many people — it should pass a clear law that says so.

There’s a lot of disingenuousness packed in to this one short paragraph, so it’s worth going through it slowly.

First, Sorkin baldly asserts that “the government is desperately looking to raise revenue”, which I don’t think is true. It’s true in Greece, but it’s not true here: I can’t remember Barack Obama, Tim Geithner, or any other politician talking about the desperate need to raise tax revenues. (Although they should.) It’s fair to say that Democrats are less averse to tax hikes than Republicans are when it comes to reducing the deficit, and of course the Democrats do control the White House. But I see no indications at all of a desperate search for revenues.

Second, Sorkin is clearly saying that the IRS thinks that its job is to maximize the revenue it collects, rather than simply administering the existing tax code in a fair manner. And probably most people who have ever been audited would see it that way. But I genuinely don’t think that’s how the IRS sees it, or, more importantly, how it has been instructed. Indeed, there’s a strong case that the opposite is true: the IRS now has 5,000 fewer employees than it did a year ago, with the majority of those job cuts coming straight out of tax enforcement. When budget cuts get made, there’s never a more popular agency to cut than the IRS, even though, fiscally speaking, the lowest-hanging fruit of all is to increase the IRS’s budget and simply ensure that Americans pay a higher percentage of the taxes that they legitimately owe.

Third, Sorkin is also clearly saying that having decided “to wring additional dollars out of the private jet industry”, the IRS then went so far as to try to do so “through reinterpreting arcane rules in court”. This monstrously misrepresents the current court case, which was initially brought by NetJets, against the IRS. In November, NetJets sued the government for $642.7 million, saying that it had been charged too much in taxes; it was as a development in that case that the IRS decided to countersue earlier this month for a further $366 million. If there’s anybody here attempting to reinterpret arcane rules in court, it’s NetJets, not the government. As a close reading of Sorkin’s column makes clear, the government is attempting to apply tax law which has been settled since 2003; it’s NetJets which is challenging that precedent in court.

Fourth, if anybody’s contorting themselves to come up novel interpretations here, it’s NetJets, not the IRS. The law is clear: when you take a plane journey, you pay a 7.5% excise tax, plus $3.80 for each leg of travel. We all do it, every time we fly. Well, 99.9% of us, anyway. The exception is people with private jets, who argue that since they’re owners rather than passengers, they don’t need to pay the tax. And now NetJets is trying to piggyback on that argument, saying that even if you just have a Marquis Jet Card, that means you’re an owner and should be exempt from paying taxes.

To get a feel for just how much of a stretch this argument is, just look at Warren Buffett, the owner of NetJets, who told CNBC that he didn’t “really see where a business aircraft is different from a business locomotive”. I can think of a few ways, like the fact that business aircraft are used for passenger air travel, while business locomotives are used for freight transportation. But for the record, I’m all in favor of Buffett avoiding the excise tax by hitching a lift on one of his BNSF trains, next time he needs to travel somewhere.

Fifthly, Sorkin adduces no evidence that Congress didn’t want to apply the transportation tax to private jet owners. If you’re imposing a 7.5% excise tax on air travel, it probably stands to reason that you’d want to apply it to all passenger air traffic, rather then just to those of us waiting in snaking lines to have our shoes x-rayed. Did the private-jet lobby manage to carve out a loophole somehow? Or did they just get lucky with the way the law was drafted? Either way, if we’re working on the basis of Congressional intent here, then it behooves Sorkin to come up with some indication that NetJets’ interpretation of the law comports in any way with what Congress intended.

And sixthly, there’s Sorkin’s final rhetorical flourish — that if NetJets is challenging the law, then it’s incumbent upon Congress to clarify matters. Sorkin is in desperate need, here, of a primer on the three branches of government: it’s the judiciary, not the legislature, which is in charge of that kind of thing. And when Sorkin says that if the government wants to raise revenue, then Congress should pass a law — well, he’s doing the same kind of eliding. When he talks about “the government” in his first sentence he’s referring to the executive, but by the time he reaches his second sentence, he’s talking about the legislature.

The way that the US government is set up, it’s hard for legislation to get through both houses of Congress and then be signed into law by the president. That’s deliberate. And of course in the present political and economic climate it’s harder still for that to happen if the legislation in question takes the form of any kind of tax hike. Which means that it’s completely ludicrous for Sorkin to put the onus on Congress to clarify any question of tax law that a clever corporate lawyer in Omaha somewhere might be able to challenge. That’s simply not Congress’s job.

In SorkinWorld, any time that any rich individual or company didn’t want to pay a particular tax, all they would need to do is challenge that tax in court. At that point, Sorkin will come galloping to their defense, saying that it ill behooves any government to fight tax battles in the courthouse, and that really the tax shouldn’t be paid until a whole new piece of legislation has wended its way through Congress and the White House.

Well, I don’t want to live in SorkinWorld, and I suspect that even Sorkin doesn’t, either. But one thing’s for sure: by making these arguments in his prominent NYT column, Sorkin will certainly gain access and influence among the plutarchy.

12 comments

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Defunding the IRS is yet another great way of ensuring corporations and wealthy individuals pay less in taxes.

Still, so is defending not forcing second lien write-downs and other bank subsidies. There are many roads leading to Rome.

Posted by Foppe | Report as abusive

All the people who travel on private jets are among the 1% who own and rule us. What’s the point of being in the ruling elite if you have to play be the same rules as everyone else? IMO, Mr. Salmon is dangerously close to a charge of lèse-majesté. Mr. Sorkin knows better, and knows how his boss at the NYT like to travel.

Posted by MrRFox | Report as abusive

Fwiw, the transportation tax already has applied to private jet owners, on fuel and other direct flight costs. What the IRS now is trying to do is expand the definition of what business aircraft-related spending is taxable to include third-party management fees on the aircraft.

Posted by right | Report as abusive

Tak, Felix -

Very nice piece of forensic work: argument deftly dismantled and each separate piece neatly tagged and laid out on a crisply illuminated table. (I’ve come to call this kind of exercise a Cassidy, in honor of the Great Bike Lane Debate.)

And while we’re on the subject, why shouldn’t the airlines simply convert their various mileage and rewards programs into Seat Leasing Clubs, in which the passengers become member-owners of the airline’s passenger cabins, and therefore eligible to dodge the excise tax as well? And then you just add a nominal “membership” fee to every ticket sale (say a buck, kind of like those old “gentlemen’s club” one-day memberships) and everybody’s off the hook.

Posted by djseattle | Report as abusive

Let’s analyze the 4 points Felix makes about Andrew Ross Sorkin’s (ARS) missive.

1)”I can’t remember Barack Obama, Tim Geithner, or any other politician talking about the desperate need to raise tax revenues.”
Really Felix? Have you not listened the President and Congressional Democrats repeated speeches and draft laws defining rich down to 200k/yr income with actual plans pushing that down to below 100k and eliminating many traditional and well established(over decades) tax deductions? I could go on Felix but apparently you were not paying attention to the orator in chief, that’s Ok, I’ve tuned him out too.

2) “Sorkin is clearly saying that the IRS thinks that its job is to maximize the revenue it collects, rather than simply administering the existing tax code in a fair manner. And probably most people who have ever been audited would see it that way. But I genuinely don’t think that’s how the IRS sees it, or, more importantly, how it has been instructed.”
Really? Is that why the IRS has made laws (yes made laws by themselves under “Administrative” rules without vote of Congress) that assume citizens to be a tax cheats and criminals without actual acts or intent over the years? For example of a new sledgehammer law, tax slaves must report all foreign bank accounts even if declared and paid all taxes on, else we are de facto criminals under the law with cruel and unusually high penalties with no relation to the “crime”. There are hundreds of laws on the books that have lost all moorings to intent, facts and harm. On this point Felix I think you should do more research as you are way off base. The IRS will litigate the little guy into the ground and does not recognize clearly correct tax rulings by one Federal jurisdiction in the others.

3) Felix, read the law and read the case. Netjets does have a valid point, and guess what? You can’t appeal the IRS administrative law rules unless you first pay the tax. That’s the law Felix. ARS is naive here though, since ALL tax law is arcane and debated and litigated endlessly. The only guys that can take them on are the big guys, not little guys who the IRS overpowers with their bloated bureaucracy. So on this point you are wrong to judge against Netjets for suing the IRS first. That is the way the system “works” here in the U.S.

4)”if anybody’s contorting themselves to come up novel interpretations here, it’s NetJets, not the IRS. The law is clear:”
No the law is not clear, read the law and the case history before you comment Felix. The interpretation hinges on the IRS “guidance” (sic) concerning the issues of “possession, command and control” by aircraft owners as it relates to “transportation services”. Netjets argument is cogent and meritorious whereas the IRS argument is customarily arcane, inane and subjective for its convenience of overreach.

5)”Sorkin adduces no evidence that Congress didn’t want to apply the transportation tax to private jet owners.”
Here ARS assumes that the reader knows the underlying facts, aka, has done their homework. He is correct and clearly the law applies to “transportation services” i.e. companies such as airlines. Netjets and fractional jet ownership was a Buffet innovation. Private transportation vehicles have not been considered transportation companies offering their services to the public historically by the IRS. It is the IRS that is trying to carve out a new tax here by innovating the law too. Who can blame them “the IRS thinks that its job is to maximize the revenue it collects”. Felix, Fair and IRS are oxymoron to anyone that is clinically alive.

6)”And sixthly, there’s Sorkin’s final rhetorical flourish…”
Well Felix in light of the previous 5 point clarifications who can blame ARS for a little hyperbole since it is Congress (must be that lawyer thing) that writes amorphous laws that make Charles Lutwidge Dodgson’s tale of Alice seem concrete in comparison. It is you Felix that is in desperate need, here, of a primer on the three branches of government. ARS correctly points the finger at “Government” and Congress since it is all branches that have created and fostered the fourth branch of government, not the fourth estate of the erroneous press which has forced this educational text, but that of “Administrative Law” under which the IRS flourishes in it own wonderland subjecting the tax slaves of Alice land to its interpretive whims and perverse logics as it writes the law while it “administers” it as well. It was directed to by the Congress too lazy to actually write laws anymore. No wonder that the merry go round of laws and litigation is endless and convoluted when the system has created a large branch of government that not only writes its own rules but administers them too, what a conflict of interest.
In closing Felix I think that ARS has made a good argument that you took at face value without fleshing out the details as good members of the press should do, but ARS was talking to the wonderland insiders who apparently you are not one, but could be if you did your homework, paid enough taxes to reach critical mass or battled the IRS enough times. Count your blessings, you have lived a charmed life.

Posted by JP007 | Report as abusive

Here are 5 of my own (not 6 like JP007) citations on this problem:

1. The IRS does not designate value to the money that’s extracted from the little guy. The IRS is simply indifferent to the value of the money that it collects.
As long as the IRS exists in a bubble it’s simply not going to care.

2. The executive branch and the legislative branch simply do not care to know where the tax payers money goes as long as it’s extracted. It is not their job to care, it’s their job to maximize and bikini wax the burn rate.

3. No ordinary citizen is allowed to know how their tax money is being used; it could very well subsidize corporate jet purchases, it’s really on a need to know basis.

4. People need to be read their Miranda Rights before paying anything, since the IRS tells Net Jets it’s ok to not take responsibility and it very well tells hard working people to prepare to be tracked down relentlessly because somebody transposed a number on their 1040 EZ, the government is mad as hell about it and isn’t going to tolerate the transposition anymore.

5. Don’t listen to Andrew Ross Sorkin. If you see him on TV, turn the TV off. If you have his book, please return it or use it in the grill to cook your steaks or brats for the 4th of July weekend. If he’s on the radio, turn it off. It’s blasphemy!

Posted by laguardia23 | Report as abusive

Here are 5 of my own (not 6 like JP007) citations on this problem:

1. The IRS does not designate value to the money that’s extracted from the little guy. The IRS is simply indifferent to the value of the money that it collects.
As long as the IRS exists in a bubble it’s simply not going to care.

2. The executive branch and the legislative branch simply do not care to know where the tax payers money goes as long as it’s extracted. It is not their job to care, it’s their job to maximize and bikini wax the burn rate.

3. No ordinary citizen is allowed to know how their tax money is being used; it could very well subsidize corporate jet purchases, it’s really on a need to know basis.

4. People need to be read their Miranda Rights before paying anything, since the IRS tells Net Jets it’s ok to not take responsibility and it very well tells hard working people to prepare to be tracked down relentlessly because somebody transposed a number on their 1040 EZ, the government is mad as hell about it and isn’t going to tolerate the transposition anymore.

5. Don’t listen to Andrew Ross Sorkin. If you see him on TV, turn the TV off. If you have his book, please return it or use it in the grill to cook your steaks or brats for the 4th of July weekend. If he’s on the radio, turn it off. It’s blasphemy!

Posted by laguardia23 | Report as abusive

fszdfsd

Posted by travelpapa | Report as abusive

Any tax hike is unpopular, regardless whether it is ultimately needed or not. Whether it is taxing the rich or poor, such decisions always come under fire. The politicians had better come up with a clear justification for the hike.

Posted by Simonstar12 | Report as abusive

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