Fed Tax Break Encourages SUV Purchases

While environmentalists argue the government should do more to encourage people to buy more efficient cars, Eron Shosteck of the Alliance for Automobile Manufacturers in Washington, D.C., says the vehicle tax credit for small businesses simply needs to be expanded.

"Anyone who uses a vehicle to conduct their business should be able to get a tax credit," he said. "Right now the law discriminates against people who only need smaller cars. It distorts the marketplace."

Meanwhile, the $2,000 deduction for hybrid owners, set up as an extension of a 1992 law designed to encourage drivers to buy electric-powered cars, is set to fade. The full deduction for hybrids is allowed through 2003 and is reduced 25 percent a year until it is phased out.

There is White House support to revive the measure. The Bush administration has said it favors a provision that would allow $3 billion in tax credits for hybrid and hydrogen fuel cell vehicles over 11 years. But the measure's status remains uncertain. A Senate committee passed a bill in April that would extend tax breaks for hybrid cars, but the House committee's version of the bill eliminated the credits.

Even if the $2,000 tax break for hybrids is extended, its impact may be limited. Hybrid cars sell for about $5,000 more than their strictly gas-powered counterparts. And unlike the large vehicle credit, which can in some cases cover the entire cost of a large SUV for small business owners, the hybrid car deduction does not cover the extra cost of buying hybrid technology.

The deduction wasn't enough, for example, to convince Matt Rheingold, a realtor in Boulder, Colo., to buy a hybrid this year, although he was considering the option.

"I'm definitely interested because I figure if people can do something simple to help the environment, then why not?" said Rheingold, who uses his car to escort clients to property locations. "But I'm going to wait until they integrate hybrids into nicer models."

Changes Ahead?

Senator Barbara Boxer, D-Calif., has introduced a bill in the Senate that would exclude SUVs from the list of vehicles people could write off using the $100,000 small business tax credit. A similar bill was introduced in the House in February and both are pending.

In the meantime, other, statewide provisions are proving effective in boosting hybrid car sales. Some states have their own state tax deductions for the cars and Virginia and Hawaii have introduced measures that permit single drivers who operate a hybrid or super-low-emission vehicle to use lanes normally limited to carpools.

Todd Ketch, a commuter in Woodbridge, Va., wrote recently in the Washington Post that purchasing his Honda Civic Hybrid "truly changed my life," thanks to carpool lane law.

"Now … if I leave my office by 5:15 p.m., I can be in my driveway by 6 p.m.," he wrote. "I see my kids a lot more these days."

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