http://www.commondreams.org/headlines03/1201-08.htm
Published on Monday,
December 1, 2003 by the Minneapolis
Star Tribune
Going Backwards
Tax Breaks Target Big SUVs
by Elizabeth Dunbar and Rob Hotakainen
QUOTE:
"Bad policy. It encourages the use of the most fuel-inefficient
means of transportation in urban America."
Minnesota Democrat Jim Oberstar
WASHINGTON, D.C. -- Taking the advice of her accountant,
Carolyn Hodgson found a way to reduce her federal taxes
this year: She spent $38,117 on a sport-utility vehicle.
After deducting the
cost of the 2002 GMC Yukon Denali from
her 2003 income, Hodgson figures she'll end up saving about
$14,000.
"It helps offset
some of the other rising expenses businesses
are facing," said Hodgson, of Plymouth, who bought the SUV
for her Edina delivery business.
The incentive, part
of President Bush's economic stimulus
package approved by Congress earlier this year, is gaining
attention from car dealers and accountants across the country.
For years, business
owners have been able to use vehicle purchases
as tax write-offs for equipment, but now the rules have changed
dramatically.
In a move intended
to encourage businesses to invest in new
equipment, Congress is allowing a full deduction of as much
as $100,000 for business equipment. In previous years,
the equipment deduction was limited to $25,000.
Included in the category
of equipment are vehicles weighing
more than 6,000 pounds when fully loaded -- which can mean
heavy-duty pickups used in construction work or Cadillac
Escalades.
For those who buy smaller
vehicles, the tax benefit is much
less attractive. The maximum deduction businesses can take
this year for a new car weighing less than 6,000 pounds is
$10,710. And while the deduction for large vehicles can be
taken in a single year, the deduction for smaller cars must
be spread out over five years.
In New York, RIA senior
tax analyst Bob Trinz is urging people
who run small businesses or professional practices to "buy
yourself an SUV for Christmas." And in the Twin Cities, car
dealers are realizing that the break could be good for business.
"We're going to
take advantage of this and go after it in the
next 60 days," said Michael Kahn, sales manager at Stillwater
Motors.
Kahn said the tax break
has meant a bigger demand for trucks,
vans and SUVs. For example, instead of stocking two or three
Chevy Express cargo vans, Kahn has 15. And he's trying to get
the word out because he says it will help his business and
the economy.
Heft helps
The tax law is encouraging
a bigger-is-better mentality among
both auto dealers and the buying public.
To qualify, vehicles
must be used mainly for business. At least
38 vehicles hit the 6,000-pound weight requirement, including
Dodge Durangos, Lincoln Navigators and Toyota Land Cruisers.
Buick introduced a new luxury SUV for 2004 that barely meets
the cutoff: 6,001 pounds fully loaded. A buyer who has more
than $50,000 to spend could shop for a Range Rover or a
Hummer H2.
"We've seen a
change in the type of vehicles that some
people are buying," said Cheryl Meyer, an accountant with
Biebl and Ranweiler in New Ulm, Minn. The firm's tax advisers
have been talking about the tax breaks at state and national
conferences for accountants.
Some dealers are expecting
an end-of-the-year rush because
small-business owners who buy and use qualifying vehicles
before Dec. 31 can deduct the entire amount from their taxable
income this year.
So far, Kahn said,
funeral homes, construction companies,
real estate agents and delivery services are among those
taking advantage of the tax break.
"People come in
and want to upgrade their whole fleet,
so they're coming in with big orders," he said.
Tom Johnson, a Minneapolis
tax adviser for Boulay, Heutmaker
and Zibell, said he hasn't seen people buy vehicles that
they don't need or can't afford.
"It's still an
economic decision," he said. "But if they
need a vehicle like that, it makes it much more attractive."
Even with the tax break,
consumers have to think about how
much they'll spend on gas. The larger SUVs generally get
between 9 and 15 miles per gallon.
Hodgson said she already
discovered the drawback.
"This thing is
horrible," she said of her Denali, adding
that she's at the gas pump every three days. "I step on
the gas and you can just watch the gas gauge drop."
Opponents
fuming
Environmentalists and
fiscal watchdogs are fuming.
They say that not only
is Congress failing to increase
fuel-efficiency standards, but now Washington is allowing
tax breaks that encourage bigger vehicles.
"Just by increasing
the fuel efficiency of our cars and
trucks, we could answer a major part of the challenge of
America's energy future," said Sen. Richard Durbin, D-Ill.
"As long as SUVs
are flying off of dealership lots, the
current break makes no fiscal sense," said Keith Ashdown,
vice president of policy for Taxpayers for Common Sense.
Rep. Betty McCollum,
D-Minn., and 26 other House Democrats
are cosponsoring a bill that would plug the SUV loophole.
A similar bill has been introduced in the Senate by Barbara
Boxer, D-Calif.
"Giving tax breaks
to encourage the selling of these heavy,
gas-inefficient SUVs . . . doesn't do anything to help us
reduce our dependency on oil," McCollum said.
Minnesota Democrat
Jim Oberstar, the ranking member of the
House Transportation and Infrastructure Committee, said the
tax break is "bad policy," adding: "It encourages
the use
of the most fuel-inefficient means of transportation in
urban America."
While the legislation
to plug the SUV loophole is pending,
nothing is scheduled to change anytime soon. When Congress
considered an energy bill earlier this month, efforts to
change the deduction back to $25,000 failed. Under current
law, the $100,000 deduction will end on Dec. 31, 2005,
returning to the $25,000 level.
For now, business groups
argue that the increased deduction
is helping businesses expand, even if it means more people
are buying SUVs.
"In the big picture,
you're stimulating the economy by giving
small business owners a bigger deduction," said Raj Nisankarao,
president of the National Business Association.
He said that people
often forget that the new $100,000 limit
is allowing businesses to purchase more equipment and supplies
than the $25,000 limit permitted.
But McCollum said the
need for an SUV tax break has never
come up in conversation with a small-business owner.
Though Hodgson said
she appreciates the tax break,
she wonders whether the money could be spent elsewhere.
"It just seems
like this is helping the people who are
already successful," she said.
© Copyright 2003
Star Tribune
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