Loopholes as Big as an SUV
The United States, home of the Hummer, the Navigator and the Expedition, today imports 60% of its oil. Roughly a quarter of that comes from the Persian Gulf, primarily from Saudi Arabia and Iraq. Yes, Iraq. Compare that with 1973, when only 33% of daily oil consumption was imported, and still the Arab embargo sent the economy into a tailspin.
Reliance on Middle East oil is a front-and-center issue, so a bit of the federal tax code that gives special deductions for the very biggest SUVs deserves inspection.
Businesspeople who buy the least efficient mass-market car, a Hummer H2 (average miles per gallon: 11) can reap $13,476 in tax breaks one year after purchase. By contrast, those who buy or lease one of the most efficient cars, the Toyota Prius (average miles per gallon: 48), get only $3,729.
Congress did not set out to shower lavish tax rewards on gas guzzlers. When it exempted passenger vehicles weighing more than 6,000 pounds loaded, lawmakers meant to help farmers and construction workers buy large pickups and vans for hauling. At the time, in the late 1970s, light trucks were mainly commercial vehicles. Today, they account for nearly one-half of passenger vehicles sold.
Intentional or not, the tax loopholes should be closed.
The IRS has the authority to take action now by more vigorously scrutinizing the “100% business use” claims that are necessary to qualify for the deductions. The IRS need not let real estate agents carrying nothing bulkier than brochures in their Lincoln Navigators claim tax benefits written to help farmers afford a heavy pickup.
To rein in the wasteful symbolism of this law, Congress will have to stop dodging the problem, as a House-Senate energy conference committee did this year. In a piece on how to “reduce our growing dependence on volatile Middle Eastern countries for oil” published in the Beltway journal Roll Call this month, the chairman of that committee, Rep. W.J. “Billy” Tauzin (R-La.) didn’t once mention the need to close these tax loopholes, much less improve overall vehicle fuel economy. Instead, he said that when Congress reconvenes in January, he will concentrate on opening the Arctic National Wildlife Refuge to oil drilling.
Raising vehicle fuel economy across the board would reduce oil dependence far more dramatically than drilling in the wildlife refuge. Getting rid of one counterproductive tax break, however, would at least signal that Congress is capable of standing up to the auto industry.
