Here's a loophole that needs to be closed. I don't care if someone choose to buy a Hummer or an SUV on steroids, but why should they get a tax break for it?
Tax breaks that no conservative can endorse
Paul Mulshine
Newark Star Ledger
Tuesday, October 28, 2003
In a recent column on SUVs, I mentioned a tax loophole that permitted a guy I know to save $15,000 in income tax by buying a giant, 12-mpg gas guzzler that he didn't really need or want.
This prompted a number of e- mails from people much like myself, conservatives who hate SUVs. There are a lot of us out there. We like cars and we like the free market, and the SUV is an insult to both.
Reader Harry Lee of Basking Ridge stated this perfectly. "I defend the individual's right to make stupid, uninformed car decisions but, like you, I resent the government's influence in the decision- making process. Your column mentions a $15,000 tax incentive for the purchase of an SUV. What is this? I know about the scam of gas- guzzler tax avoidance with the 'light truck' category but am not aware of a direct incentive. I'd love to know more, the better to be prepared for my frequent SUV indictments."
I realized it was my duty as a journalist to confront the beast head-on. So one fine day I got into my sports car and headed up the highway until I could see something huge up ahead blocking the sunlight. There they were, dozens of Hummers on the horizon. I parked in a far corner of the lot and began to prepare for the difficult task that awaited me. I had to appear smart enough so that I might be able to afford a Hummer but dumb enough to want one. That's not easy.
On the way in, I stopped to inspect a Hummer. The first thing I noticed was the price sticker: $53,000. Right next to it was a Xeroxed newspaper article headlined, "It's not just a Hummer; it's a tax break." The article from the Seattle Post-Intelligencer quoted a number of Hummer dealers around Washington state on the effect the tax break was having on Hummer sales.
"It's as hot as I've ever seen it, and I've been in the business 40 years," said one dealer.
I was curious whether the market was as hot here in Jersey, so I walked into the showroom and grabbed a salesman. I asked him if the tax break was helping him move Hummers. "I sold three just this week," he told me.
"All with the tax break?"
"All with the tax break," he replied.
He then took another Xeroxed article off a pile on his desk. This one explained the tax break in detail. The deduction is available to anyone who has a business against which he can claim it as an expense. This includes a whole lot of people likely to want big SUVs, such as lawyers, real estate agents and business owners. The tax break was originally designed for farmers, construction workers and other blue-collar types on the theory that any vehicle more than 6,000 pounds was clearly a work truck. But there are now 38 SUVs on the market so huge they qualify for what one Florida car dealer has termed "a tax loophole big enough to drive a Hummer through."
In the middle of the showroom sat a really nice-looking Cadillac four-door, a sedan in which any lawyer or real estate agent would be proud to ride.
"I have to admit that sedan is more my style," I said. "Can I get that big tax break on that?"
"Nope," he said.
After some more car talk, I shook hands with the salesman and made my exit. When I got home, I made a call to a guy named Keith Ashdown of Taxpayers for Common Sense, a watchdog group that has been highlighting the absurdity of the loophole. The group's Web site (www.taxpayer.net) features a white paper on the issue.
I got out my calculator and with Ashdown's help did the math. Imagine you buy a $53,000 Hummer. Your business can write off the entire $53,000 as depreciation in the first year. In the top tax bracket, that will lower your bill to the IRS by a whopping $18,550.
Now imagine you buy that sedan, which costs a mere $38,000. For a car, the depreciation tax break is a mere $2,677 in the same tax bracket. So the $53,000 Hummer ends up being cheaper than the $38,000 sedan -- even though the Hummer burns more than twice as much gas. Ashdown calculates that the treasury loses about $900 million in tax revenue because of this loophole.
Loony as that sounds, it gets worse. If those Hummers were treated the same as cars, each one would be subject to a gas-guzzler tax that would run into the thousands. The Congressional Budget Office estimates that the treasury loses $600 million a year because vehicles over three tons aren't subject to this tax.
And then there's the so-called "light truck loophole" under which regular-size SUVs -- Ford Explorers and such -- avoid the gas- guzzler penalties that would apply to cars. That costs the treasury at least another billion in lost taxes and fines a year.
That's a total tax subsidy of about $2.5 billion a year just so people can drive SUVs instead of cars. Meanwhile, the Americans who really need Hummers are driving them around Iraq trying to protect our supply of imported oil.
Some people might think this makes sense. And they have the right, as Harry Lee noted, to make stupid, uninformed decisions. But it would be nice if they didn't call themselves conservatives. |
