Loopholes Big Enough To Drive Through

Try to wrap your mind around this: Dad tells Junior he shouldn't eat so much sugar, yet offers to increase his allowance if he buys more sweets. Think Junior's going to buy apples -- or Twix bars?

Such is the logic of the recently increased "SUV tax loophole."

The story goes like this: In the midst of the Reagan presidency, back before SUVs were the rage, the IRS began to allow small business owners a tax deduction for purchases of vehicles over 6,000 pounds. The idea was that businesses could then afford important new equipment while the economy would receive a boost through increased sales.

Unforeseen, however, was the exponential rise in the popularity of sport utility vehicles over the subsequent two decades. The rub, the infamous "loophole," is that the law makes no distinction between an accountant commuting in a Hummer and a contractor updating a fleet of pickups.

The deduction, up to $25,000 until May, was raised to $100,000 as a part of President Bush's recent "economic stimulus package." This 300 percent increase passed despite widespread criticism that the loophole clearly encourages the purchase of unnecessary gas-guzzling SUVs like the rugged Lincoln Navigator and that trusty workhorse, the Mercedes ML-55.

The results have become apparent across the nation, as accountants and auto-dealers alike push SUVs as a way to cut taxes. One Texas dealer, reported the Washington Post, ran a radio ad, that, if less tasteful than most, was far from exceptional: "It's a loophole, and this weekend, we can show you how to make that loophole big enough to drive a fleet of trucks and sport utility vehicles through it!"

Before the increase, the loophole's existence was no secret. Senator Barbara Boxer had already introduced the "SUV Business Tax Loophole Closure Act," and critics from columnist Arianna Huffington to Taxpayers for Common Sense had been publicizing it for at least two years. The government's own Joint Committee on Taxation estimates that well over $1 billion would be saved over 10 years by closing the loophole -- so why does it still exist?

According to Huffington, the rationale is simple; just follow the money.

"The numbers tell the story," she wrote in a column earlier this year. "The auto industry spent close to $37 million on lobbying in 2000. And you can bet that money wasn't spent trying to convince Congress to designate a 'Windshield Wiper Appreciation Week.' Although I'm sure Congress would have been glad to oblige if its deep-pocket pals in Detroit had only asked. After all, the industry has donated over $77 million to federal candidates and the political parties since the 1990 election -- with $12.5 million doled out during the 2002 election cycle."

A bit of sanity has begun to emerge. The Senate Finance Committee voted several weeks ago to roll back the increase on SUVs only (allowing small business owners who truly need utility vehicles to still receive the tax break).

Keith Ashdown, Vice President of Policy at Taxpayers for Common Sense, calls it "a good first step."

"As long as SUVs are flying off of dealership lots, the current break makes no fiscal sense," Ashdown continues. "This decision moves us one step closer to eliminating this inequitable tax break. While it isn't a knock-out punch, it is definitely a body-blow to this outrageous loophole."

Even more recently, according to Reuters, Sen. Don Nickles (R-Oklahoma) sought to include language in the energy bill that would close the loophole. "There is enormous abuse of this provision," he said. "People are driving SUVs through this loophole." In the end, however, according to Reuters, "Republican leaders swiftly moved to ensure no mention of the loophole was included in the final version of the energy bill...."

Though the energy bill itself ultimately failed to pass the Senate, a Republican president and majority in both houses of Congress virtually ensure the survival of this sweetheart deal between lawmakers and business. Manufacturers are happy with increased sales, and so are investors. Even laborers in the auto industry are happy as the temporary spike in earnings increases job security. With all this political clout behind the loophole it's difficult to envision politicians, without a significant outcry from their constituents, lining up to close it.