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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. Whowould have thought that those three staples of the English alphabetcould stir such a fury among politicians, environmentalists,business owners and consumers alike? Yet it's true. As if thetax code itself weren't enough to enrage even the most tranquilamongst us, a loophole in the code has attracted much attention inrecent days, adding fuel to an already out-of-control fire havingto 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 onthe market--regardless of whether they need that vehicle forbusiness purposes. Now, as part of his economic stimulus planunveiled earlier this month, President Bush would allow for a taxdeduction of $75,000--which, in some cases, would amount to theentire cost of the SUV.

The administration maintains that the greater businessdeductions would aid not only an ailing economy by encouragingequipment purchases and creating jobs, but also those businessowners who have a need for a heavy SUV or pickup. But opponents ofthe loophole point out that creating hefty deductions forgas-guzzlers--coupled with the meager deductions awarded to buyersof cars (some of them quite fuel-efficient)--ignores the illeffects of fuel consumption.

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

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

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