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A Hummer-Sized Loophole

May 30, 2003

In campaigning for massive tax cuts, President Bush ridiculed questions about their fairness as "Washington ... political rhetoric."

So why does the tax bill he signed into law Wednesday omit a $400 child credit for millions of low-income families but contain a juicy but obscure boon for the wealthy?

In a last-minute political maneuver, House and Senate leaders precluded families with incomes of $10,500 to $26,625 from eligibility for the $400 increase in the child credit to $1,000. Canceling the provision -- on the grounds that such families pay little federal tax anyway -- saved the government $3.5 billion.

But if savings rather than punishing poor Americans had been the aim, lawmakers wouldn't have handed out a tax break for huge sport utility vehicles, even Hummers. Not just a little tax deduction but as much as $100,000.

It kicks in for individuals with small businesses, potentially anyone merely filing as self-employed. Depending on the tax bracket, and especially for those affluent enough to afford street behemoths with big price tags, this generous depreciation deduction could be enough to cover the cost of another vehicle, say a middle-class stalwart sedan like the Honda Accord or Ford Taurus.

The Natural Resources Defense Council is lobbying to get rid of the tax loophole with legislation sponsored by Sen. Barbara Boxer (D-Calif.). Congress should pass this measure and Bush should sign it into law as soon as possible.

The loophole started innocently enough in 1984 when Congress let small businesses deduct up to $25,000 of the cost of a working commercial vehicle, like a dump truck or delivery van. The deduction covered vehicles weighing 6,000 pounds or more. This presumably ruled out the family car.

But in recent years, sport utility vehicles grew bigger and heavier and ever more popular as family cars. The NRDC says 38 models of these family vehicles are heavy enough to qualify for the deduction.

This year, Bush proposed raising the deduction to $75,000. Congress boosted it to $100,000. Alas, the lawmakers, perhaps with a wink, chose not to close the SUV loophole. It's easy to fix this situation and keep the deduction as a legitimate boost to small business and job creation. The Boxer plan simply redefines working commercial vehicles and excludes SUVs.

No one knows how many Americans are prompted to buy an SUV as a family vehicle because of this deduction. But Congress' Joint Committee on Taxation estimates that the Boxer exclusion would save the government $1.3 billion over the next decade.

It's bad enough that giant SUVs guzzle gas and pollute the air. Congress should halt the ridiculous practice of the government paying people to buy them. No less reprehensible is lawmakers' stinginess toward poor families. Of the many questionable elements in the Bush tax cut, these two are enough to drive you off a cliff.

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