January 11, 2004
Can anybody explain why this SUV exemption for business owners isn't a bigger story? I discovered it through Marcia Ellen, who along with most of the press I can find is from AZ.
Section 179 of the federal tax code allows businesses such as partnerships, sole proprietorships and corporations to accelerate the depreciation of certain business equipment. Vans, trucks and sport utility vehicles that weigh more than 6,000 pounds when carrying their maximum recommended passengers and cargo can be substantially depreciated in the first year of service instead of over the typical five years.Note that this revision of the tax code was part of the most recent round of Bush tax cuts. You can read about (among other things) the administration's careful vetting process for those cuts here.The list of vehicles that meet the 6,000-pound threshold includes the Cadillac Escalade, Lincoln Navigator, Ford Expedition and Excursion, Hummer H1 and H2 and others. The buyers aren't just small-business people and farmers. Many are doctors, lawyers and real estate agents.
The intent of the law is sane, but the abuse of it is not. I believe the proper use of this depreciation acceleration is for trucks used for delivery of goods or for vehicles used for gardening services, movers, etc...
Such a vehicle will typically get the snot pounded out of it in an average year, so the acceleration of depreciation makes sense.
Of course someone figured out they could depreciate their Hummer under the law and many started abusing the law. Maybe a tax on personal SUV's based on weight would offset the lost revenue.
Yeah the article covers the reasons for the inital law, but it also explains that the threshold came down on the exemption as part of the second round of Bush tax cuts. At best this is seriously irresponsible policy, but after reading the CBS article I think it would be a mistake to assume it's not a deliberate perversion of the law.
By the way, I'm not at all concerned about the lost revenue - the problem is the incentive it's creating for Americans to buy luxury SUVs and the unfairness it imposes on regular car owners.
What are your main objections to SUV's?
1. Fuel wastefulness
2. More likely to flip
3. More likely to kill others in an accident
4. Block the road, block parking spaces, etc...
5. Heavy vehicles damage roads more quickly than others.
My personal objections are 1 and 3. There are hybrid SUV's in the works to address #1, so I may be left with #3.
I'd be interested to hear if there are other objections.
The tax code is dominated with inconsistencies and perverse incentivizations.
Your retiring Senator is an advocate of a flat tax that removes all these twisted deductions and eliminates the huge cost of IRS employees reviewing deductions and tax accountants scheming new loopholes.
I, myself, lean toward the elimination of Income Tax, which disincentizes earning, and lean toward a graduated national sales tax. Now lets soak it to the rich and throw a whopping 50% tax on all thing costing more than $20K. SUVs included. How many plasma tv's do we need anyway.
Hi Ted... I definitely don't have a problem with plasma TVs, but as a policy matter the govt should probably create incentives away from SUVs just because of the fuel efficiency and fatality issues BOG mentioned. I'm not going to get into progressive taxation here, but it seems bizarre that you'd have a tax loophole for business owners with SUVs that doesn't apply to mere mortals like me... and you, by the way. I'm not against consumption per se, but letting somebody get a discount on a luxury SUV just because he's a doctor? I have a problem with that.
Perhaps of interest: my contractor father-in-law looked long and hard at this exemption and decided against buying a new vehicle for his business. His rationale was that he already has enough vehicles and adding another one, no matter the incentives attached to it, would actually cost him money.
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