How U.S. tax law is driving higher transport emissions

U.S. climate action may look different after the 2024 presidential election, especially across transportation decarbonization. While the future of the electric vehicle industry has been a topic of political debate, another transport issue warrants scrutiny: why U.S. tax laws incentivize bad climate decisions. In this edition, we take a closer look at Sections 168 and 179 of the Internal Revenue Code (IRC) and how they are having a negative effect on transport decarbonization. 

(Note: This is a general overview of the stated IRC sections and should not be considered official tax advice.) 

‘Incentivizing’ private jet purchases 

As it stands, Section 168(k) of the IRC is incentivizing activities that contribute to higher transport emissions. Under this provision, a “qualified property” is eligible for bonus depreciation if it meets one of a long list of characteristics. One example of eligible property that has an adverse impact on transport decarbonization is private aircraft.

“Qualified property” includes property with a general depreciation recovery period of 20 years or less. It’s through that qualifying language that businesses can depreciate a private aircraft. The allowances and benefits associated with purchasing a private jet increased from 50 percent to 100 percent during Trump-era changes through the 2017 Tax Cuts and Jobs Act.  

While the incentives are in the process of phasing out, businesses were allowed 100 percent bonus depreciation on their taxes from 2017 to 2022 if they purchased a private jet and placed it in service by Dec. 31, 2022. The bonus depreciation in 2024 has dropped to 60 percent, going down to 40 percent in 2025, 20 percent in 2026 and sunsetting in 2027, with some special delays in sunsetting for qualifying “transportation property” and “certain aircraft.”

Given the private jet must be predominantly used for a “qualified business use,” the IRS is increasing audits to determine which wealthy individuals may be flying for leisure while noting the plane was for business use. 

While bonus depreciation is designed to encourage businesses to invest in new equipment and assets by giving an immediate tax benefit during the year of purchase, such tax changes were noted to greatly increase the sale of private jets, which is harmful from a climate perspective. Research from Polaris Market Research projects the business jet market to reach $41.82 billion by 2030, with North America accounting for 67 percent of all business aircraft in the world in 2022.

Conversations about private jets regularly center on the rich and famous, most notably individuals such as Taylor Swift. While she isn’t alone responsible for all private air travel emissions, she does provide an example of its emission impact potential.

“It is estimated that, in 2022, her private jet usage created over 8,000 tonnes of carbon emissions, which is well over 500 times the yearly carbon output of the average American from all sources, or around 1,000 times that of the average European,” Rob Barlow, professor of ethics and corporate responsibility at Hult International Business School, tells Airport Technology regarding Swift’s travels.

‘Incentivizing’ heavy vehicle purchases

While the IRC, including Section 168, allows for certain tax savings from purchasing a vehicle, for years, Section 179 has incentivized an American culture of purchasing heavy SUVs and trucks. 

Heavy luxury SUVs and pickups over 6,000 pounds in gross vehicle weight and mainly used for business purposes more than 50 percent of the time are eligible for specific deductions. For example in 2023, a qualifying heavy vehicle had a deduction limit of $28,900. 

Under the same provisions for private aircrafts discussed earlier, heavy vehicles from brands such as Audi, Range Rover and BMW are allowed bonus depreciation, following similar percentage breakdowns — 100 percent through 2022, 80 percent in 2023 and so forth. 

In 2022, SUVs and pickups recorded a new record market share in the first four months, accounting for 72.9 percent of total passenger car sales. While it’s not possible to say tax laws were the sole contributor of this growth, it’s hard to see how they didn’t have some impact. A report from the International Energy Agency found that in 2022 if global SUV sales were a country, they would easily be in the world’s top 10 highest polluters.

As the effects of the 2017 Tax Cuts and Jobs Act gradually diminish, especially in the lead-up to the 2024 presidential election, it will be interesting to see if changes are implemented should former President Donald Trump be reelected.