The SUV loophole


Published: Thursday, January 2, 2003 at 6:01 a.m.
Last Modified: Tuesday, December 31, 2002 at 5:35 p.m.

There's an easy way the federal government could take in an additional $840 million to $987 million a year in taxes: Cut out a tax subsidy for purchasers of luxury sport-utility vehicles.

The deduction for business owners can save more than $21,550 on the price of a $71,865 Land Rover Range Rover, nearly $16,200 for a $54,000 Cadillac Escalade.

And while the fuel-guzzling SUVs can qualify for as much as $30,000 in tax deduction, prospective buyers of fuel-efficient hybrid vehicles can only gain a $4,000 tax credit.

"You have a Christmas present here," said Aileen Roder, program director for Taxpayers for Common Sense, to The Wall Street Journal. The nonpartisan

budgetwatchdog group said the deduction is one of the largest tax breaks per capita on the books. "This is one of the most lucrative breaks in the tax code," Roder said.

"We're making it a fiscal nobrainer for businesses to buy giant SUVs."

The SUV credit originally was meant to apply to light trucks and was added so working pickups used by farmers wouldn't be taxed the same as luxury cars. But SUVs are classified as light trucks, so the credit applies to them too. And while purchases of new luxury cars also have a luxury-tax surcharge attached to them, those don't apply to more than three dozen models of SUVs weighing 6,000 pounds or more.

So, if a business owner bought a $45,000 SUV, $24,000 of the cost could be written off the first year on income taxes as accelerated depreciation. In addition, the remaining $21,000 could be written off under a five-year depreciation schedule of 20 percent a year, adding an additional $4,200 in depreciation for the first year. Total first-year tax benefit: $28,200. Next year, the $24,000 tax credit increases to $25,000.

"We think it's outrageous that the government is giving special treatment to these vehicles under the guise that they are used for farm or work purposes," said Michelle Robinson, a spokeswoman for the Union of Concerned Scientists, an environmental group, to The New York Times. "Congress needs to step up and close this loophole, especially at a time when we clearly, now more than ever, need to be saving oil and not promoting the biggest gas guzzlers."

The United States is once again facing budget deficits. Rewriting the SUV tax credit would help reduce it. Gasoline costs have risen, but fuel-consumption mandates imposed by Congress haven't changed in decades. The SUV tax credit discourages conservation.

While makers of fuel-efficient hybrid vehicles have had to fight for a meager tax credit for prospective buyers, people who want luxury SUVs have been handed a huge tax credit.

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