House Nixes Free Ride for Hummer-Buyers
For years, real estate agents zipping around in Hummers and caterers driving Land Rovers have had good reason to do so: federal tax laws provide enormous breaks for business owners claiming luxury SUVs as work vehicles. But this week, in the face of global warming and rising fuel cost concerns, the House approved a bill to eliminate that incentive.
“No longer are we providing tax breaks to those who buy the least efficient vehicles, like Hummers, or subsidizing the energy technologies of yesterday,” Rep. Earl Blumenauer (D-Ore.), who sponsored the so-called “Hummer tax loophole” provision, said in a statement.
Illustration by: Matt Mahurin
The provision came as part of a sweeping proposal to cut roughly $17 billion in tax breaks and other subsidies to the oil and gas industries. The money would be used instead to promote the nation’s shift to wind, solar and other renewable energy sources. The bill passed Wednesday by a vote of 236 to 182, largely along party lines.
Blumenauer’s Hummer amendment targets a tax break that arrived accidentally. As originally written, the deduction was designed to help family farmers and other self-employed workers buy the vans or trucks their jobs demand. Only much later, as the SUV boom found lawyers and accountants behind the wheels of three-ton vehicles, did lawmakers recognize that white-collar professionals were using the loophole to buy automobiles much larger than their line of work required.
Aside from Hummers and Land Rovers, Blumenauer’s proposal would affect Lincoln Navigators, Chevy Blazers, Ford Explorers and roughly 50 other luxury SUVs weighing more than 6,000 pounds. Farm vehicles, vans, pick-up trucks and a host of other work vehicles would be exempt from the proposed change.
It’s not the first time the loophole has been attacked. Until four years ago, business owners could write off the cost of luxury SUVs up to $100,000. A 2004 law squeezed the deduction to $25,000, but that figure is still well above the break available to buyers of smaller cars and trucks. A 2006 report from the Congressional Research Service found that the total deduction for luxury SUVs was 35 percent greater than that for other vehicles.
Eli Hopson, who represents the Clean Vehicles program with the Union of Concerned Scientists, said the larger deduction has been much of the reason that heavy vehicles, which represented 20 percent of the auto market in the 1970s, stand at roughly 50 percent today.
Now House Democrats, environmental advocates and some tax-policy watchdog groups want to eliminate that discrepancy.
“Nobody’s saying that you shouldn’t be able to buy an SUV for your business,” said Steve Ellis, vice president of programs at Taxpayers for Common Sense, a nonpartisan budget watchdog. “But there’s no reason you should be given a bigger break than if you bought a station wagon.”
The automobile industry has battled that claim, arguing that the current law promotes consumer choice while stimulating the economy.
“These are vehicles purchased by small business owners to meet a specific need,” said Charles Territo, spokesman for the Alliance of Automobile Manufacturers. “If a real estate developer decides he needs a roomy vehicle with off-road capabilities, that’s the business owner’s choice.”
If the law is being abused, Territo added, it’s a concern for the IRS. “If people are lying about their use of vehicles,” he said, “then they’re already breaking the law.”
At least for the moment, the auto industry has little to fear. The House bill now moves to the Senate, where similar legislation stalled three times in the last year alone. On top of that, the White House this week issued a laundry list of reasons it would veto the proposal — particularly the elimination of subsidies for the petroleum industry. “[T]he bill,” the administration wrote, “would use the tax code to target tax increases on a specific industry in a way that will lead to higher energy costs to U.S. consumers and businesses.”
Conservationists and the majority in Congress take issue with that view. In a Feb. 28 letter to the White House, House Democratic leaders argue that the bill would “correct an imbalance” in the tax code that favors the oil and gas industries, even as those industries are reeling in record profits. “There is no justification,” the lawmakers wrote, “for continuing taxpayer-financed subsidies for the largest companies in the oil industry and the most profitable corporations in America.”
With wars raging in the Middle East, the global warming debate heating up and the price of oil topping $100 per barrel, environmentalists say that something has to give. In the face of those conditions, they say, there remains little justification for Washington to continue encouraging consumers to buy some of the heaviest, most polluting gas-guzzlers on the road.
“The whole purpose of tax incentives is to encourage behaviors that are beneficial to the country as a whole,” said David Jenkins, government affairs director of Republicans for Environmental Protection. “You see these people in their Hummers and everything else. It makes no sense for the government to incentivize that.”