Archive for July, 2011

Hey, let’s just split the tab down the middle …

July 2, 2011

Everybody knows one of these jabrones: they order apps, expensive wine (which you don’t touch), a high-priced entre, a fancy dessert (or two)  … and then have the gall to suggest splitting the bill down the middle.

Ouch.

Ratchet the game up a notch, and you get Thomas Sowell’s perspective on the debt limit:

What the national debt-ceiling actually does is enable any administration to get all the political benefits of runaway spending for the benefit of their favorite constituencies — and then invite the opposition party to share the blame, by either raising the national debt ceiling, or by voting for unpopular cutbacks in spending or increases in taxes.

The Obama administration is a classic example.

When all its skyrocketing spending bills were being rushed through Congress without even being read, the Democrats had such overwhelming majorities in both the Senate and the House of Representatives that Republicans had … no chance of stopping, or even slowing down, the spending of trillions of dollars.

Now that the bill is coming due for all that spending and borrowing, Republicans are suddenly being invited in to share the blame for either raising the national debt ceiling or for whatever other unpopular measures will be legislated.

“If you didn’t invite me to the big take-off, don’t invite me to the crash landing.”

This was Obama’s big, partisan spending spree, but “bipartisanship” requires Republicans to either split the bill or be blamed if the government shuts down or defaults.

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First, tanning salons … now, corporate jets … here are some nums.

July 1, 2011

Talk about playing small ball …

In Wednesday’s press conference, Pres. Obama turned the spotlight on the “tax loophole for corporate jets”.  He mentioned them 6 times in the press conference.

Must be a big deal, right?

Wrong.

I’m not a big fan of corporate jets, but that’s beside the point.

I’m more intrigued by the numbers … and so far, I haven’t heard any pundits nail them.

First, what’s the “loophole”?

Well, corporate jets get depreciated over 5 years; commercial aircraft (like Southwest’s) get depreciated over 7 years.

The “loophole” is 2 years of accelerated depreciation.

Nobody seems to be disputing that corporate aircraft are deductible as a business expense.

The only question is whether the cost gets booked over 5 years or 7 years.

What’s the difference?

Well, let’s assume – for round numbers —  that a jet costs $1 million.

If it’s a business jet, the company can deduct $200,000 for 5 years ($1 million divided by 5).; if it’s a commercial jet, the airline can deduct $142,857 for 7 years ($1 million divided by 7).

Note that the aggregate nominal deduction doesn’t  change — it is $1 million in both cases.  Just the depreciation period is different.

So, to figure the impact of the different depreciation periods, let’s calculate  the NPV of the 2 depreciation streams  (see table below) …

  • A 5 year stream of $200,000 per year – discounted by 5% per year – has a $909,190 NPV.
  • A 7 year stream of $142,857 per year – discounted by 5% per year – has a $867,956 NPV.
  • The difference is in NPVs is $41,234.

But, $41,234 is the NPV of the tax deduction … not the NPV of the incremental taxes that the gov’t collects.

Assuming a 25% average corporate  tax rate, the deduction has a tax NPV of about $10,000  ($41,234 times 25%) … about 1% of the plane’s purchase price.

Said differently, this Obama game-changer is equivalent to putting a 1% excise tax on new corporate jets.

That’s how Obama’s is going to attack the deficit ???  That’s his big idea ???

Geez.

Only upside I see is that one of Warren Buffett’s dreams will come true since NetJets —  his corporate jet leasing company — will take a direct hit.

Maybe Buffett will stop whining about his taxes being too low.

Maybe.

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Maryland adds ‘environmental literacy’ to HS graduation requirements … huh?

July 1, 2011

Last week, the Maryland state Board of Education approved an environmental literacy graduation requirement: High school seniors in Maryland will have to demonstrate literacy on environmental matters to graduate from now on.

According to the AP, public schools will be required to infuse core subjects with lessons on conservation, smart growth and other environmental topics.

Maybe that’s a good idea, but consider:

According to the Editorial Projects in Education Research Center, only about 74 percent of all students in Maryland graduate from high school with a regular diploma.

Less than 2/3s of Hispanics and African-Americans get a high school diploma.image

The obvious questions:

1) Will the HS graduation rate go up or down when an additional criteria – any criteria – is added?

I’m betting the down side …

2) Recent statistics indicate that a large proportion of HS graduates get their diploma with an adequate foundation in reading, writing and arithmetic.

Shouldn’t attention be laser-focused on those subjects?

3) Seriously, does it matter if inner city kids are schooled in ‘smart growth’?

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