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Tax Deduction Loophole Creates a Furor

With a tax loophole the size of the Grand Canyon--and large SUVs to match--business owners await Congress' next move.

They're simple, functional little letters: S, U and V. Who would have thought that those three staples of the English alphabet could stir such a fury among politicians, environmentalists, business owners and consumers alike? Yet it's true. As if the tax code itself weren't enough to enrage even the most tranquil amongst us, a loophole in the code has attracted much attention in recent days, adding fuel to an already out-of-control fire having to do with Americans and their SUVs.

Business owners have already had the option to deduct instantly $25,000 from their tax bills by buying some of the largest SUVs on the market--regardless of whether they need that vehicle for business purposes. Now, as part of his economic stimulus plan unveiled earlier this month, President Bush would allow for a tax deduction of $75,000--which, in some cases, would amount to the entire cost of the SUV.

The administration maintains that the greater business deductions would aid not only an ailing economy by encouraging equipment purchases and creating jobs, but also those business owners who have a need for a heavy SUV or pickup. But opponents of the loophole point out that creating hefty deductions for gas-guzzlers--coupled with the meager deductions awarded to buyers of cars (some of them quite fuel-efficient)--ignores the ill effects of fuel consumption.

The tax loophole has prompted Sen. Barbara Boxer (D-CA) to cry foul in a letter to the U.S. Senate Committee on Finance. In the letter, Sen. Boxer notes the importance of creating incentives for business purchases--but not if it means encouraging the purchase of large SUVs when a nice compact will do just fine, thank you. Urging the committee not only to exempt the SUV tax loophole from applying to any increased allowable expense deduction for small businesses, but also to close the loophole itself, Sen. Boxer makes plain her intent: "I am preparing a bill to do just that. I know that Congress never intended for the SUV tax loophole to exist, and I look forward to working with you to close it."

Regardless of Congress' intentions, and regardless of whether the loophole will be closed, it seems that business owners, in the interim, have a choice to make when it comes to vehicle purchases.

Karen E. Spaeder is a freelance business writer in Southern California.

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