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SUV Loophole: A Gift from US Taxpayers
Published on Saturday, December 6, 2003 by the Minneapolis Star Tribune
SUV Loophole: A Gift from U.S. Taxpayers

It's beginning to look a lot like Christmas for SUV buyers. Dealers, too. With the approach of snowy weather and shopping's heydays, dealers are promoting deep discounts now available on the biggest of these behemoths -- an early gift from American taxpayers.

Thanks to provisions in President Bush's tax-cut package of last May, anyone with a plausible claim to business purpose can deduct the full cost of eligible SUVs and trucks. They could even deduct more than one, up to a sticker-price total of $100,000. As a dealer in Texas has pointed out, a clever customer could probably buy five Ford F-150 XL Supercab flareside pickups at $18,000-something apiece and write off the whole fleet.

To qualify for this treatment, the vehicle has to weigh at least 6,000 pounds, fully loaded. Roughly three dozen models clear that bar, including the iconically oversized Ford Expedition, GMC Yukon, Lincoln Navigator, Cadillac Escalade, Dodge Durango and, of course, the Hummer and Hummer H2.

A purchaser paying the maximum tax rate can save a bundle -- almost $19,000 off a $54,000 Escalade, for example. That creates a powerful incentive for buyers to choose the biggest, heaviest and most gas-guzzling models, which were selling quite well without any help, over more modest SUVs or even sedans.

That was not the intended result of the tax changes, although it is a measure of the Bush administration's reputation on environmental questions that many have assumed otherwise. In part this situation could be called an accident of policymaking, but one that neither Congress nor the White House has shown much interest in avoiding or correcting.

Its roots can be traced to 1984, when the Internal Revenue Service classed three-ton trucks and larger as deductible business equipment. Of course, this was back when such vehicles were, in fact, workday necessities for farmers and contractors.

In 1997, well into the SUV era, the class of "business owner" entitled to take such deductions was broadened to include pretty much anyone claiming some self-employment income. The maximum deductible amounts, however, were much lower -- $18,000 in 1997, rising to $25,000 in 2003.

That's what changed last May. The deduction limit was raised to $100,000 as a way to stimulate business-equipment sales; despite an outcry from environmental and taxpayer groups, efforts to exclude SUVs went nowhere. And so the biggest SUVs acquired yet another undeserved advantage over other vehicles -- including those that are actually used for business purposes. A self-employed consultant or small-business owner who buys a sedan or minivan or under-three-ton truck this year can write off only a little over $10,000, and has to spread the deduction over five years.

Senate committees made efforts to correct this absurdity, without avail. House Republicans refused to accept corrective language in their horrible energy bill, pledging to deal with the matter separately.

Don't hold your breath. Favoring SUVs at income-tax time is completely consistent with federal rules that give them breaks on fuel-economy standards, safety requirements and luxury taxes. On the other hand, public outrage over the latest largess might help those who seek to force more fairness into all these policies.

Star Tribune 2003


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