-Caveat Lector-
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January 21, 2003
Bush Proposal May Cut Tax on S.U.V.'s for Business
By DANNY HAKIM
DETROIT, Jan. 20 The Bush administration's economic plan would
increase by 50 percent or more the deductions that small-business
owners can take right away on the biggest sport utility vehicles and
pickups.
The plan would mean small businesses could immediately deduct the
entire price of S.U.V.'s like the Hummer H2, the Lincoln Navigator and
the Toyota Land Cruiser, even if the vehicles were loaded with every
available option. Or a business owner, taking full advantage, could buy a
BMW X5 sport utility vehicle for a few hundred dollars more than a
Pontiac Bonneville sedan, after the immediate tax deductions were
factored in.
Tax experts and environmentalists say the plan would provide incentives
for businesses to choose the biggest gas-guzzling trucks because it
takes several years to depreciate the cost of passenger cars and smaller
sport utility vehicles. The ramifications of the Bush plan on S.U.V. buyers
were reported today in The Detroit News.
The potential lift for sales of big S.U.V.'s comes amid rising tension in
the Middle East and increasing criticism of S.U.V.'s from
environmentalists and regulators.
But a top budget official said today that the administration might be
open to changes in the tax code that would bring cars more in line with
big trucks.
We have an open mind about whether the deduction for cars needs to
be refined, said Dr. John Graham, the administrator of the Office of
Information and Regulatory Affairs in the Office of Management and
Budget.
The tax code now caps deductions for most automobiles. But the largest
vehicles those that weigh more than 6,000 pounds fully loaded are
exempt because the relevant portion of the code was written in the
1980's, before the rise of the sport utility vehicle, and was intended to
exempt big pickups needed on work sites. Now the tax incentives also
give business owners not involved in hauling doctors, real estate
agents, accountants more incentive to buy the biggest S.U.V.'s instead
of smaller ones, or cars.
The proposal makes a glitch in the tax code much worse and it benefits
rich businessmen who want to buy massive S.U.V.'s, said Aileen Roder,
program director for Taxpayers for Common Sense. In essence we're
buying these vehicles for these businesses.
But the administration says that greater business deductions will be a
potent economic stimulant.
Many small businesses have genuine needs for large vans, pickups and
S.U.V.'s, whether it be for a farm, sales or industrial application, Dr.
Graham said. An updated tax deduction for small businesses is
certainly needed.
Consider the Hummer H1 as an example of the new deduction. It is one
of the largest and most expensive S.U.V.'s, with a base sticker price of
$102,581, including destination charge. Under the Bush plan, small-
business owners could use all of an annual $75,000 capital equipment
deduction toward the purchase; the current equipment deduction
allowance is just $25,000.
That is in addition to thousands of dollars in other deductions. Under
existing rules, a business could deduct 30 percent from the base price
left after the capital equipment deduction, a benefit put in place as part
of a post-Sept. 11 stimulus package. In the case of the H1, that would
be a further deduction of $8,274.
Finally, 20 percent could be deducted from what is left, part of the
business deductions available for automobiles. For the H1, that would
be $3,861 more in deductions.
The total would be more than $87,000 in deductions, or about
$33,500 in savings in federal taxes alone for buyers in the highest
bracket. Under current rules, just less than $60,000 could be
deducted.
Deals for cars and small sport utility vehicles are much less appealing.
Currently, a business can deduct no more than $7,660 for a car in its
first year of service, $4,900 in the second year and less in the
succeeding years. The Toyota Prius, which uses a fuel-efficient blend of
gasoline and electric power, is eligible for an additional $2,000 clean
vehicle deduction. That means a business owner could deduct under
half of the $20,500 sticker price of the Prius in the first year of
purchase, for about $3,700 worth of federal tax savings for those in the
highest tax bracket.
David Friedman, an engineer and analyst at the Union of Concerned
Scientists, an environmental group, said the increased deduction for big
vehicles was yet another loophole that the government is keeping open
that is increasing our oil dependence.
Before, it was large enough to drive a small S.U.V. through, he added.
Now it's large enough to drive a Hummer through.
Without altering the treatment of cars in the tax code, the Bush plan
could run
