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After all, trucks and vans were far from status symbols, and
early SUVs came nowhere near the three-ton loads they pack today.
The size of the loophole increased from $17,500 in 1996 to $20,000 last year,
before being bumped to its new level. Federal lawmakers, however, are taking
another look at the size of this tax break. A bill now in Congress, S. 1637,
contains a provision to shrink the tax deduction for large SUVs from $100,000
back to the $25,000 level. The larger write-off would continue for certain
business-use heavy trucks or vans, such as refrigerated trucks.
The reconsideration of the law follows the change in America's driving habits.
As super SUVs became the automotive status symbol of the new millennium,
doctors, accountants and well-heeled professionals of every stripe helped
themselves to the tax break originally designed to aid struggling family
farmers.
"We definitely agree with continuing the tax break for small businesses that
actually need it, but we don't think we should have law firms doing a latte run
for the office in a massive SUV," says Aileen Roder, program director for
Taxpayers for Common Sense, a Washington watchdog group. "Unfortunately, the
market has outgrown the tax loophole. That loophole needs to be closed."
Although the government doesn't quantify the SUV tax break, TCS estimates the
cost of the loophole to taxpayers at between $840 million to $987 million for
every 100,000 vehicles sold for business use. Those figures would skyrocket if
the cap were raised to $75,000.
Compare that to the in-kind cost of tax deductions to reimburse teachers for
classroom supplies ($250 million), encourage investing in individual retirement
accounts ($90 million) or help small businesses comply with the Americans with
Disabilities Act ($525 million) and it's easy to understand why watchdog groups
are crying foul over the extravagant, albeit legal, application of the statute.
In a white paper, TCS proposed reclassifying the heavy SUVs from industrial
vehicles to passenger vehicles and placing them under the tax code's normal
depreciation schedule for business.
"I have no problem with SUVs per se, but it's not a market that needs
stimulating. They are flying off the lot," says Roder. "We don't need to be
using the tax code to boost sales."
"What Would Jesus Drive?"
The tax break is a relatively minor point in a far hotter and broader debate
over the moral and even spiritual ramifications of owning an SUV.
The gas-hungry luxury vehicles have recently come under attack by the
Evangelical Environmental Network's "What Would Jesus Drive?" campaign and
journalist Arianna Huffington's Detroit Project which links SUV driving to
supporting terrorism. Even Dr. Jeffrey Runge, head of the National Highway
Traffic Safety Administration, says SUVs are so unsafe that he wouldn't let his
family ride in one "if they were the last vehicles on earth."
Ed Hunt, editor in chief of Tidepool.org, a news organization that tracks
environmental issues, says buying an SUV for your business is at best penny-wise
and pound-foolish.
"It's not really smart business," he says. "If I'm getting 15 miles to a gallon,
that's twice as much money out the door as if I'm getting 30. Some of these
vehicles get as low as 11 miles a gallon. If you're any kind of businessman,
making a purchase that increases your monthly expenses just doesn't make any
sense."
Hunt, who owns an SUV, says that the tax break is in direct contradiction to the
Bush administration's goal of cutting U.S. dependence on foreign oil. He says we
could have been off the stuff years ago if the government had provided similar
tax incentives to switch to fuel-efficient vehicles. Even President Bush drives
a natural gas Ford truck on his Texas ranch, he notes.
"Certainly the technologies are there, but there hasn't been the investment made
in it that we make in subsidizing the oil and gas industries," he says.
"President Bush's proposed $1.5 billion for hydrogen is approximately the
advertising budget for the SUV in the United States on a yearly basis. It really
is very, very little in terms of money."
Hunt says the time is right to shift the tax break from gas hogs to gas misers.
"We know the demand for oil is going to increase. The American Petroleum
Institute says look, oil is going to get more expensive in the future and when
it gets too expensive, people will switch to alternative power sources. It's not
like this isn't conventional wisdom. But the sooner we start investing in that
future, the more chance we will have to profit from it rather than have some
other country make the investment and then sell us the technology later down the
road. We would much rather be an exporter of clean energy technology than an
importer."
Chris Cedergren blames the whole convoluted SUV debate on Jerry Ford. That's
right, former President Gerald Ford.
In 1975, Ford signed into law the Corporate Average Fuel Economy (CAFE)
legislation. The legislation's good intentions aside, it made those same farm
trucks exempt from new, tighter fuel-efficiency guidelines.
"That concept was great for the mid-'70s, but the federal government should have
been watching trends, because what it did was push personal-use sales from cars
to trucks," says Cedergren, an analyst for NexTrend, which works closely with
the auto industry. "People still like big vehicles with big V-8 engines, and it
was getting increasingly difficult to get them on the car side. CAFE gave a
favorable bias toward trucks.
"If CAFE was never imposed or if it were equalized between car and truck, we
wouldn't have the situation we have today."
Fashion, not taxes, lure boomers
Cedergren says the very idea of a tax incentive setting off a stampede of SUV
buyers is just plain silly.
"The fact is, there is no impact whatsoever. People buy SUVs, especially the
high-end ones, because of fashion. It's all about fashion, it's all about image.
Their decision to buy an SUV over a Mercedes Benz passenger car is not driven by
a tax incentive," say Cedergren.
"What mitigates the whole argument, too, is that so many people lease the
vehicles that we're talking about. That tax incentive really goes away when you
lease. It only affects the purchase."
The auto industry today is being driven by a higher percent of affluent buyers
than ever before, according to Cedergren. Despite the prediction of some of the
best minds on Wall Street, the children of the baby boom continue to purchase
luxury vehicles at a record pace, with BMW and Mercedes Benz celebrating the
best January-February period in history.
"The SUV consumer has been groomed under a high standard of living and basically
expects to get whatever he wants whenever he wants it. It's hard to change
behavior after it has been programmed into you for 25 or 30 years. Even if your
stock portfolio goes down 40 or 50 percent, you're going to justify in any way
you can to go out and continue spending because it's the only thing you know.
You don't know how to sacrifice. You don't know how to do it."
Would it be safe to assume that the current uproar over SUVs doesn't overly
concern industry insiders?
"We use it for comic relief," Cedergren says.
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