Congress was hard at work last week passing a tax reform bill meant to close off the loophole that has allowed small business owners to deduct up to $100,000 from their tax returns to offset the purchase of large SUVs.
The original law, which went into effect in the summer of 2003, was intended to give farmers an economic boost by allowing them to deduct the expense of small trucks meant for hauling and transporting feed and cargo. But under the law, any small business could take the deduction for any vehicle weighing 6,000 pounds or more, which includes most of the largest SUVs, such as Hummers, Escalades and Navigators. As a result, realtors, contractors and other “urban cowboys” helped boost sales of these large SUVs by as much as 40 percent over the last several months, often choosing large SUVs over smaller, more practical cars that did not qualify for the tax break.
The new bill—which President Bush is expected to sign into law this week—imits the tax deduction to only $25,000, but extends it through 2007. Businesses would still be able to deduct the cost of pickups and other large vehicles up to $100,000.
Meanwhile, environmentalists are glad that the amount of the deduction has been reduced. Some critics still decry any incentives for the purchase of gas-guzzling vehicles however, especially when they are considered unnecessary. “Twenty-five thousand is better than $100,000, but we don’t think Congress should encourage people to buy these big, fuel-inefficient vehicles,” said Joan Claybrook, president of the consumer group Public Citizen.