Tax Analysts Blog

Everybody Loves a Drone

Posted on Mar 20, 2013

Drones are hot. At least you might think that considering all the press drones have been getting lately. The U.S. military has been using drones to whack terrorists from Somalia to Pakistan. Now terrorists are not exactly the most sympathetic characters. Their main goal in life is to kill Americans and other infidels.
Their reward, or so they hope, is an eternity in paradise (unlimited figs, camels, and the proverbial virgins). Personally, I am not all that exercised about using drones to kill people who would like to kill me. Of course, our president and attorney general could not articulate whether it was okay to use a drone to drop a bomb on a U.S. citizen on U.S. soil. I myself think that the government should at least tell us if there is a chance they may secretly blow us up. That gave rise to the now famous Rand Paul filibuster. Most filibusters by both parties are petty grandstanding. I do not think Senator Paul's was. And drones of course have been talked about a lot as tools for state and local police. Basically, the government can spy on our every move while contemplating when to drop a rocket on our heads. One need not be a member of the ACLU (which in all openness I am) to think that is a bad idea.

What does this have to do with taxes? A pair of misinformed legislators in California are proposing that the state give tax incentives to the manufacturers of drones. Assembly members Jeff Gorell (R) and Steve Bradford (D) introduced AB 1326 which will give tax breaks to the makers of unmanned aerial vehicles (UAV). The people who make, sell, and shill for the industry, don’t call them drones because of all the negative connotations. Now before you accuse me of being unpatriotic, there are some parts of the measure that are good.
The bill would provide sales tax exemptions for the purchase of machinery used in drone, I mean UAV, production. That is a good thing. Business inputs should not be subject to sales tax. But there is a lot more bad than good. The measure would provide income tax credits to drone companies creating jobs. So if you build a plant and hire people to make drones, you get a big tax break. If you build a plant and hire people to make something else (say t-shirts with peace signs on them) you don’t.

The sponsors, obviously guys who flunked basic tax policy school, say that the UAV industry is going to explode in the next six years. Good gracious. If the industry is growing why does it need incentives? This is horrible tax policy. The government should not use the tax code to pick winners and losers in the market place. Actually, the government is already picking the drone industry as a winner through the appropriation process. Do we have to compound that by enriching the industry through the tax code as well?

Read Comments (1)

vivian darkbloomMar 21, 2013

I agree. Very bad policy.

And, to demonstrate just how bad and silly it is, can you imagine the difficult
task the drafters of such legislation have in targeting those tax breaks to the
intended beneficiaries?

Unmanned aerial vehicles? When I was a kid, I used to play with those balsa
wood models for which the propeller was powered by a rubber band. I hope they
get the tax break, too.

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