Fed Tax Break Encourages SUV Purchases

Thanks to a generous tax credit, Karl Wizinsky is driving a very large vehicle these days — a 2002 Ford Excursion.

"It doesn't hurt to have a larger vehicle, but I wouldn't say it's a requirement of my business," he said on a cell phone while driving the Excursion. "But I ended up saving $32,000."

This year, the perks of buying a large SUV — if you're a small business owner — got even bigger.

Congress recently passed a tax bill, as proposed in President Bush's economic stimulus plan, that offers a $100,000 tax credit for business owners who purchase any vehicle weighing 6,000 pounds or more when fully loaded.

When Wizinsky's accountant told him about the credit last year, the amount was much less, at $75,000, but it was enough to encourage Wizinsky to trade in his Mercury Marquis for the Excursion.

"It sounded too good to be true," said Wizinsky, a health care consultant in Novi, Mich. "But it was true. So I bought the SUV. For a small company like mine it's a significant credit."

Hybrid Earns Smaller Break

Meanwhile, legislation that offers a much smaller tax break — a $2,000 tax deduction — to those who purchase fuel-efficient hybrid cars is on track to be phased out. Congress is considering legislation that would extend the tax deduction to encourage consumers to buy the hybrid cars, but the status of the bill remains uncertain.

Even though the large vehicle tax credit applies only to the self-employed while the hybrid car tax deduction applies to anyone who buys a hybrid, the stark contrast between the two amounts has environmentalists crying foul.

"You can't fault people for taking advantage of the credit if they're using the vehicles for business — it's a rational choice," said David Friedman, a senior analyst with the Union of Concerned Scientists. "But why should taxpayers' dollars go toward buying bigger and bigger vehicles? Instead, the government should be encouraging people and small business owners to buy fuel-efficient cars."

Large SUVs average anywhere from 9 to 15 miles per gallon, while hybrid cars offered by Toyota and Honda can average up to 50 or 60 miles per gallon. American drivers now burn some 9 million barrels of oil a day in their cars and trucks. That's expected to grow to 12 million barrels a day by 2010 if fuel economy does not improve, according to the U.S. government.

SUV Measure Was Meant for Small Businesses

Friedman is also concerned that many of the self-employed using the tax credit don't actually need the large vehicles for their business but, like Wizinsky, are enticed by the hefty financial return. He says some SUV and Hummer dealerships have been touting the credit to increase sales.

The tax credit for large vehicles was originally created in the mid-1980s to help farmers and small business owners purchase trucks and other large vehicles needed for hauling. The measure is designed to support and encourage small business, which, in turn, can improve the economy.

But anyone who is self-employed can apply for the credit and any vehicle weighing more than 6,000 pounds, including large SUVs and Hummers, which get 8 to 13 miles per gallon, can qualify. Originally the amount was much less — at $17,500. As the tax credit limit has increased, so have the number of claims.

According to the Washington watchdog group, Taxpayers for Common Sense, about 100,000 owners of 3.6 million large SUVs sold last year claimed the credit.

Hybrid Deduction Set to Fade

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