Increasingly small business owners are taking advantage of a little-known tax deduction for business equipment that subsidizes most of the cost of luxury sport utility vehicles (SUVs). It applies only to the largest and least fuel-efficient category of SUVs, gives $32,000 deduction for, say, a $47,000 Ford Excursion, and the entire cost of the SUV can be written off within five years.
If that seems crazy - counterintuitive to national goals of reducing foreign oil dependence - you'll be glad to know that the Bush administration wants to sweeten the deal. A provision deep in the president's economic stimulus plan would triple the tax break and allow the buyer to write off the entire cost of the vehicle in the first year. For example, a $100,000, 10-mile per-gallon Hummer would be eligible for an $88,722 tax write off. A Dodge Durango (less than 20 m.p.g.) would essentially be free. By comparison, gas-electric hybrids qualify for only a $4,000 tax deduction.
You might not like the idea of buying giant luxury SUVs for accountants, consultants, and lawyers. But at least the tax break goes to help some small businesses, right?
Unfortunately, the stimulus in this case actually threatens the US economy - and small business in particular - by making us more vulnerable to fluctuations in oil prices. The price of fuel is a cost of doing business. Few national economies are as closely tied to the price of oil as in the US economy.
Encouraging small businesses to purchase vehicles that get 10 to 15 m.p.g. increases the cost of doing business for hundreds of small companies for years to come. A 15 m.p.g. vehicle costs twice as much to operate as a 30 m.p.g. vehicle. This program saddles small business with a liability disguised as an asset.
Oil prices are already up more than 30 percent since November - what happens if the price continues to increase? No one is predicting it's going to get cheaper in the next 20 years. The Department of Energy says that the US will become more dependent on foreign oil in the future - increasingly from parts of the world prone to instability.
The more US business relies on inefficient vehicles, the greater the shock waves across the economy whenever the price of crude goes up. Conversely, rewriting the tax code could accelerate the transition to more fuel-efficient vehicles and cleaner-burning engines, while insulating the US economy from oil shocks.
For companies that don't need 6,000-pound SUVs, tax breaks could apply only to vehicles that get more than 30 m.p.g. or to efficient hybrids. Don't worry that this will push Americans into tiny Japanese econoboxes: Ford will have a 40 m.p.g. Escape SUV available for fleet sales this year. GM is planning hybrid pickups for 2004.
For companies requiring larger trucks and vans, tax breaks could encourage the purchase of next-generation diesel engines, which are up to 40 percent more efficient than gas engines.
If we are going to subsidize the auto industry by giving away cars, let's do it right. Let's focus on new technologies that will make the US economy more resistant to oil prices and foreign entanglements. It would be an investment in both the economy and the environment.
• Ed Hunt is editor in chief of Tidepool.org