Thursday, April 20, 2006

Tax Credits/Deductions for Buying Gas Guzzlers and Hybrids

In its boundless wisdom, Congress passed a bill in 2001 authorizing the immediate write-off of certain investments, termed Section 179 property. The goal of this legislation, ostensibly, was to encourage businesses to purchase capital goods contributing to current economic output and future growth. Also contained in this legislation was authority of corporations, partnerships, and proprietorships, to write off the purchase of Sports Utility Vehicles (SUV).

However pressured by U.S. automakers who manufacture many of the monstrous SUVs cruising the nation’s roads, Congress stipulated that the SUV must weigh more than 6,000 pounds in order to receive the tax deduction. Imagine that, the tax code encouraging conflicting actions. First, Congress passed legislation stimulating Americans to buy gas guzzling SUVs, then it subsequently enacted a bill providing a tax break of up to $3,400 for buying a hybrid vehicle.

So don’t be surprised to see in your neighbor’s garage a Ford Expedition for which the individual obtained a $25,000 tax deductiont (the limit for 2005 and 2006) and a Ford hybrid which qualified for a $3,400 tax credit. Unfortunately if the individual drives each vehicle equal miles per year, the overall impact on gas consumption is not good, and the drain on the U.S. Treasury is considerable.

I know some of you are surprised to see an essay on this blog criticizing tax cuts. In reality, this essay only points to the damaging economic aspects of using the tax code to accomplish social agendas and to reward successful lobbying efforts of special interest groups such as automobile producers and environmentalists.


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