Sorkin’s disingenuousness on corporate taxes

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.


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