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News :: Elections & Legislation |
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SUV Tax Break May Reach $75,000 |
Current rating: 0 |
by By Jeff Plungis / Detroit News Washington Bureau via SB
Email: boyer2128 (nospam) msn.com (verified) |
21 Jan 2003
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Bush's stimulus package has some hidden goodies for his cronies---I mean,...---no I mean cronies. $75,000 write off for continuing the insanity of gas-guzzling SUVs. Good thing he is working to reduce our dependence on foreign oil. |
http://www.detnews.com/2003/autosinsider/0301/20/a01-64218.htm
Monday, January 20, 2003
Exclusive Report
SUV tax break may reach $75,000
Environmentalists bash Bush plan
By Jeff Plungis / Detroit News Washington Bureau
SUV tax break
WASHINGTON -- President Bush's economic stimulus plan could triple the size of a little-known tax loophole that some small business owners are using to finance purchases of large SUVs.
One of Bush's proposed tax cuts would raise from $25,000 to $75,000 the amount small business owners -- including doctors, lawyers and financial advisers -- can write off when buying an SUV for business purposes.
Since the SUV loophole was first reported by The Detroit News last month, several consumer groups and lawmakers have raised concerns about the fairness of the provision. The debate signals more trouble for a popular vehicle segment crucial to Detroit automakers, whose profits have been sustained largely because of the SUV boom over the last decade.
How did tax policy become the latest clash in an escalating cultural war over SUVs?
The idea behind the broader tax benefit is that small businesses can help jump-start the U.S. economy if they spend more. To encourage entrepreneurs to open their wallets, Washington expanded the tax deduction for business equipment to $25,000 in 2003, from $17,500 in 1996. Bush's new plan takes the deduction limit up to $75,000.
"This is a plan that says that if you are willing to take risk and invest more, that there's a benefit for doing so," Bush said in unveiling the initiative Jan. 9. "It's an incentive for small business to increase ... And it will have a positive effect throughout our entire economy."
Tax relief for small businesses has widespread bipartisan support on Capitol Hill. But the administration's critics are focusing on equipment write-offs used to finance large luxury SUV purchases.
The Internal Revenue Service allows much more generous tax treatment for trucks, which the IRS defines as any vehicle with a gross weight of 6,000 pounds or more, regardless of whether it is used to haul goods or a single person.
The definition was originally intended to exempt farmers and other small businesses who needed a pickup or cargo van from limits that apply to luxury vehicles. But the definition was written well before a wide array of upscale trucks and SUVs, such as the Lincoln Navigator, Cadillac Escalade and Lexus GX470, hit the market. And well before U.S. consumers started using trucks and SUVs as a substitute for the family car.
The proposed $75,000 deduction on business equipment means that businesses choosing between a car and an SUV have an even bigger incentive to go for the SUV. Cars are not eligible for this deduction.
The Bush proposal comes on top of a stimulus bill passed last year in the wake of the Sept. 11, 2001, terrorist attacks that gave businesses an extra 30 percent accelerated depreciation on cars and trucks used as business equipment. Any remaining costs can be deducted on a regular depreciation scale of 20 percent in the first year of ownership.
'Practically free'
Small-business owners have been using the $25,000 equipment deduction to help finance purchases of trucks and SUVs. With vehicles in the $47,000 price range, such as the Ford Excursion, more than $30,000 of the purchase price can be deducted, reducing a small business tax bill by about $12,600. Raising the cap on business equipment to $75,000 will make it possible to write off the entire cost of vehicles such as the Hummer H2 or BMW X5 in the first year. A small-business purchase of a car, by contrast, might take 10 years to 20 years to fully depreciate.
A business owner purchasing a Hummer H1 for business purposes could write off $25,000 of the purchase price as an equipment investment, for example. Under the provision passed in Congress last year to stimulate the economy, another 30 percent of the remaining purchase price, or $24,356, could also be deducted. The Hummer owner could then deduct 20 percent of the remaining purchase price, or $11,366, under regular depreciation rules. That's a total deduction of $60,722.
Under the Bush plan, the total deduction for a Hummer H1 will go up to a potential $88,722.
"Oh, you've got to be kidding," said Skip Barnett, a Hummer dealer in Atlanta when told of the Bush tax plan's implications for a business SUV purchase. "That would make a Hummer practically free."
Barnett said most of his buyers were small-business owners with annual incomes of $200,000 or more. He said more and more of his customers were asking about the tax deduction. "We've been selling the truck hands down," he said.
In the weeks since The News first reported on the SUV tax break, there has been a flurry of activity among small-business owners wanting to claim the deduction.
Jim Jenkins, an accountant with Jenkins and Co. in Southfield, said he has had a number of clients opt for a truck or SUV rather than a car to get the favorable tax treatment. Some clients said they never would have considered a large vehicle without the tax break.
"I've had a surprising number of people buy them," Jenkins said.
Limits sought
Environmentalists and tax reformers want restrictions on how businesses can use the equipment tax break. They are confident they will find allies on Capitol Hill in their efforts to rein in what they describe as a perverse incentive to drive business owners into purchasing the largest, most gas-guzzling SUVs.
"Leave it to the Bush administration to try to make an even more outrageous a taxpayer rip-off that benefits the rich," said Daniel Becker, director of the global warming and energy program at the Sierra Club. "I'm sure there will be a fight over this."
Raising the cap for small business equipment has strong bipartisan support on Capitol Hill. But opponents of the SUV tax break say they think they can convince lawmakers that they need to rein in the federal budget deficit. They contend lawmakers should take another look at their definition of a work-related truck to differentiate between a farmer's pickup and a consultant's luxury SUV.
One Washington watchdog group, Taxpayers for Common Sense, is pushing for equal tax benefits for more environmentally friendly cars and SUVs.
"It's exacerbating the inequities of the code," said Keith Ashdown, the group's vice president of the Bush tax plan. "It's making this loophole even more unfair."
You can reach Jeff Plungis at (202) 662-7378 or jplungis (at) detnews.com.
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How the write-off works
The Bush economic plan increases the amount business owners can deduct for the purchase of big SUVs. Two examples:
Dodge Durango
Sticker price $27,205
Current law
Equipment deduction $25,000
Total tax deduction* $25,971
Bush economic plan
Equipment deduction $27,205
Total tax deduction* $27,205
Hummer H1
Sticker price $106,185
Current law
Equipment deduction $25,000
Total tax deduction* $60,722
Bush economic plan
Equipment deduction $75,000
Total tax deduction* $88,722
* Includes bonus tax write-off enacted by Congress in March 2002 and a deduction for normal depreciation.
Sources: Detroit News research, IRS, Taxpayers for Common Sense
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After the story, there is a poll. Guess what the numbers were as of 1/21/03 @ 5:30?
President Bush's economic stimulus plan includes raising from $25,000 to $75,000 the amount small business owners can write off when buying a large SUV for business purposes. Is this a good idea?
Yes 36%
No 64%
Sounds about right.
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