A long time ago (which doesn’t seem very long to me) our country was in a state of economic malaise. A profligate tax-and-spend Congress and an economically indifferent President conspired to create the conditions for a serious recession, one that combined economic stagnation with punishing inflation (“stagflation”).
The pundits came up with a graphic term that just about said it all: the Misery Index. This (non-scientific) index combined the inflation rate with the unemployment rate. While the inflation rate today is relatively low, the economists warn us that our boundless government borrowing and debt will bring the clouds of inflation and higher interest rates soon. It is to be expected, therefore, that the media will reprise the Misery Index in the near future.
For us ordinary people, so remote from the U. S. Capitol and its bizarre happenings, the Misery Index didn’t mean that much. What we noticed were the grocery clerks changing the food prices (up) every day. If our employers happened to transfer us to another city, the economic effects on real estate sales and mortgage rates shocked us to the core. For those of us fortunate enough to move under a generous employer relocation policy, that shock was greatly ameliorated. For others not so lucky, such a transfer amounted to a sharp reduction in standard of living or an invitation to try to find another job.
However similar the recession economy is today versus that earlier time, there was an encouraging difference back then. The succeeding President and Congress must have felt at least a little bit of the pain of the people. In a refreshing difference of approach, they implemented new laws and policies actually designed to increase jobs and to slow down and eventually reduce the soaring inflation. The results of this enlightened legislation were not vague and shadowy activities taking place among politicians in capitals of far-away states. They were open, obvious and even our family had an opportunity to participate in the nation’s economic recovery in a small way.
I had a lifelong fascination with airplanes and aviation, and this opportunity was tailor made for our family. Among the recovery measures that Congress and the President implemented was a 10% Investment Tax Credit (ITC) on the purchase of qualifying new equipment for businesses. Another, related, tax feature was an Accelerated Cost Recovery System (ACRS). The former provided a tax credit (!) of ten percent of the purchase price of newly manufactured qualifying equipment. The latter allowed such equipment to be fully depreciated in five years.
Fixed Base Operators (FBOs) at airports, and flying schools (which were frequently a part of an FBO operations), were desperate for replacement rental and training aircraft. Nervous investors were reluctant to invest in aircraft during the recession, and a liability insurance issue made them even more standoffish. Because of exceedingly high awards to plaintiffs in aircraft mishap suits, the manufacturers’ price of light aircraft was inflated by 30%—the cost of liability insurance (do we hear a medical malpractice echo today?). Nevertheless, the time was ripe for our family to go into the aircraft leasing business.
My paycheck was all the income we had, and we did not have anywhere near enough savings to buy a new airplane. But we had good credit, barely enough discretionary income to handle the monthly payments, and we could really use some tax deductions (home mortgage interest was our only one at the time). So we took the risk.
I had researched the various types of airplanes within our means that could also serve as family transportation some day. My wife and younger son then interviewed owners and managers of a number of FBOs and flight schools (because my job required me to be away on business quite a bit of the time). We settled on a Piper Archer. The Archer is a four-seat, low wing, fixed-landing-gear, propeller-driven airplane powered by a four-cylinder gasoline engine. In short, it was simple enough for flight training yet was in demand for rental by less-experienced pilots (especially those with less-deep pockets).
We placed the order, making a small down payment, and waited for delivery. Of course, a number of our friends, and many of my coworkers, thought I was having a mid-life crisis or was working on a ticket to a psychiatric facility. My wife and son and I also had a few nagging doubts—would the plane actually be rented for the expected number of hours each month; would the maintenance cost run true to expectations for this model; could Congress and the President capriciously rescind the legislation before we had gotten the tax benefits; etc. But we kept a happy face, and we proceeded with plans for a christening party in the hanger of the FBO who would handle the day-to-day business details and also perform the maintenance.
One day the expected phone call came from our FBO, and we rushed to the airport, 15 minutes away, to see our shiny new airplane investment. It was a mixture of excitement, wonder and apprehension. But we now had a natural grin to help keep our happy faces; and we mailed the invitations to our christening party.
This christening party should have been covered by the society reporters of the local newspapers, because it was a blast enjoyed by all and because it was unique. An aircraft christening party normally is the purview of a Nancy Pelosi celebrating among her high-dollar supporters the arrival of her new $40 million Gulfstream personal luxury jet.
In fact, our christening party for a Piper Archer caught the attention of the Piper Aircraft Company, and they sent two factory pilots to investigate this curiosity. Once those pilots convinced themselves that we were real, and that we were just celebrating a somewhat risky (for us, at least) business venture and being new aircraft owners, they joined in the spirit of party. Both pilots volunteered to take turns treating any guests who wanted to go to a short flight in the new airplane. Among those short hops was one with my wife and son, with me at the controls beside the factory pilot—my first flying lesson since I was 17.
The only awkward thing about that party was a champagne fountain that stood high in the center of the snacks table in this immaculate, white-floored hanger. Sparkling white grape juice circulated through the fountain, and guests wandered over to the table to fill a plastic champagne glass from time to time. But one of the Piper factory pilots pulled me aside to ask, “is there a drinking fountain or soda machine around here; I’m getting really thirsty”. I pointed to the champagne fountain, but he shook his head and whispered, “It’s against FAA regulations to drink alcohol before flying”. My 17-year-old son, who was eavesdropping, quickly said, “It’s grape juice—that’s why I can drink it!” We all had a good laugh, the owner of the FBO read “High Flight” to the crowd, and we christened the plane (with a fake bottle of champagne, of course). Everyone seemed to enjoy this truly unusual party.
The airplane performed flawlessly and it was rented as much as we would allow. Our family enjoyed the 10% tax credit, plus 22% depreciation, in the first year; it even turned out that the President and Congress had not spoken with forked tongues. In the next four years we did capture the remainder of the depreciation, and eventually we made that final loan payment to the bank. At last we were unfettered aircraft owners! But, of course, just as Nature abhors a vacuum, the government abhors financial happiness.
Soon after that last payment, with the stroke of an Executive pen we were defined to the IRS as “Passive Investors”—meaning we were not actually at the desk, examining pilot credentials, collecting money, and handing over the keys to the airplane each time it was rented. Therefore, we could no longer deduct maintenance costs, taxes, and other operating costs on our tax return (but of course the IRS demanded the full taxes on gross rental income). The government giveth, and the government taketh away; and at that point our aircraft rental business retired due to terminal government disease. But we did have one consolation prize: a fully depreciated airplane (which was approaching its 2500 hour engine and propeller major overhaul). My wife, my son and I all learned to fly and we were, in fact, free to enjoy our plane for a period of time (until another economic squeeze came along).
Is there any moral hidden within this story? Not particularly, other than never trust Great Father in Washington and his or her 535 Congressional Cousins. The story does illustrate an extremely rare occurrence: legislation that is accurately portrayed to the public, performs its intended function, and encourages or tolerates extended economic growth. This happens probably less frequently than total eclipses of the sun. But in that period described, the legislation eventually powered an economic boom that continued across three succeeding presidencies. Naturally, at that point a profligate tax-and-spend Congress and an economically indifferent President conspired to create the conditions for . . .