A Hummer of a tax break for business drivers

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.

Jay MacDonald is a contributing editor based in Florida.