The No Special Subsidies for Gas Guzzlers Act

I don't think much of Markey, and his reform pitch is leaving out a lot of stuff.

Gas guzzler taxes have never been applied to trucks and SUVs that are generally classed as trucks. The lack of a gas guzzler tax is not a real incentive to buy an SUV because the tax in built in to the price. Nobody really knows they are or are not paying it. The gas guzzler tax does not show up as a line up in the purchase that anyone notices.

I think the gas guzzler tax is stupid but if we are going to keep it, I have no problem with it applying to non-commercial truck buyers (commercial buyers should then be entitled to a rebate - though giving any money back to any truck buyer would probably chap the hide of Prius freaks)

In California all pickups are required to be registered as commercial vehicles, so those owners should be treated as commercial owners.

Nobody can depreciate any more than a vehicle is worth. Businesses can accelerate the depreciation of truck and heavy vehicles, but ove the life of the vehicle they can't write off any more than they would for similarly priced cars. They will pay taxes on any depreciation they recover when they dispose of the vehicle.

People driving caars with lousy mileage pay more in taxes at the pump. A guy driving a 15mpg SUV will pay 3 times as much as I do for gas and gas taxes. (Side note: How much of a windfall is your state seeing from sales taxes on high gas prices? If gas prices were cut in half over night, California would have to address its budget as the sales tax would drop by half as well)

This whole SUV tax break thing is big red herring. It only impacts businesses, and nothing will change in the long run for them anyway. The people buying Tahoes and Yukons to drive kids to soccer practice are not getting any tax breaks (indirectly, maybe, since gas guzzler taxes are built into the price of the other cars) compared to what you get on a hybrid.

 

I believe gasoline taxes are paid by the gallon, and not based on the price. Does that mean we need guzzlers to keep the state's gas taxes high?

 

<div class='quotetop'>QUOTE(Rick Auricchio @ Sep 5 2006, 10:21 AM) [snapback]314614[/snapback]</div>

I think the issue is that, in California at least, we pay state sales tax on the price per gallon -- which already includes the fixed per-gallon gas tax. In other words, we pay tax on the tax.

 

Hi Curtis,

I think you were confused by the title of the original post. The issue is not about Gas Guzzler taxes - taxing a vehicle that uses excessive gas for single-person transportation, but about a law gives a tax deduction for those with their own buisness to buy such large vehicles. Whether there is a requirement of the buisness to need such a vehicle or not. Many self-employed professionals have used this tax break to buy large SUV's (The vehicle is required to be heavier than 6000 pounds for the tax break to kick in) for the primary purpose of driving to the office and back, by themselves.


Oh, I see you commented about the SUV tax break later on in your post. Any self-employed persion is a "buisness". Many of these guys are contractors, surveyors and many other out-on-the-road working people. So, the tax break makes sense for them. But the richest self employed people are typically professionals (doctors, lawyers, accoutants), with no need for a large vehicle to accomplish their work duties. This is the loop hole that is being exploited. You know a $50K deduction and the probable drop in tax bracket for one of these guys buys allot of Gas! So, from their point of veiw, Why Not!? And it all pushes up our cost of living. Markey is right on target on with this!


SUV's should be taken off the dededuction list, as they are not useful as a working vehicle. The business should be required to show-cause why such a vehicle is needed for the day-to-day functioning of the operations which generate income, on which taxes will be paid. Most contractors will easily be able to meet this requirement as their vehicle is used to store, and perform required transport of operationally required equipment that wieghs more than 500 pounds, daily, and/or has a bulk not accomadated by a car. Vehicles with rear passenger seats should be excluded.

 

<div class='quotetop'>QUOTE(donee @ Sep 5 2006, 05:11 PM) [snapback]314847[/snapback]</div>

Me likie your ideas!!

 

<div class='quotetop'>QUOTE(Rick Auricchio @ Sep 5 2006, 12:21 PM) [snapback]314614[/snapback]</div>

It's both. State and federal gas taxes are a fixed amount added to each gallon. California adds sales tax, as much as 8.75% in some locations, to the price of each gallon.

 

<div class='quotetop'>QUOTE(donee @ Sep 5 2006, 07:11 PM) [snapback]314847[/snapback]</div>

Markey's press release talks about both taxes. He complains that the gas guzzler tax is not imposed on SUV and light trucks that get worse mileage than some cars which pay the tax. He gave the Audi - Jeep example. The Audi pays $1300 in gas guzzler taxes, but the Jeep, which gets worse mileage, pays none.

We need to remember the very few people are concerned about the gas guzzler tax (which has been around for a couple of decades) because they don't see it. It's built into the purchase price of the cars to which is applies.

I say Markey is blowing smoke up your nice person. You can't deduct any more of the purchase price on truck or SUV than you can on a regular car. This so-called "loophole" has to do with how fast you deduct the depreciation.

A doctor or other business person cannot write off the full purchase price of a vehicle in one tax year. It is a capital expenditure that you write off in chunks over a period of years. On a regular car the schedule might be seven years. The accelerated schedule available to a truck or SUV might be three years. No difference in the end.

Let's say your doctor buys a $50K SUV and writes off the full amount in three years. In year four he sells it (or otherwise disposes of it) for $25K. He has told the IRS that the vehicle was fully depreciated under an accellerated schedule and took that full amount over the three years as dedcutions. He recouperated $25K of that depreciation... and guess what? He'll owe taxes on it. Accellerated depreciation gives him some more short term tax relief, but down the road it will all add up the same way regardless of what kind of car he writing off.

This is why it's a red herring. The people like Markey that are cackling about this will talk about "how much this cost the taxpayers last year" or "how much it will cost the tax payers next year." They will never tell how much your doctor's SUV costs the taxpayer over several years - because it would be the same as if he had bought any other $50K car.

And you should be careful about statement like "SUV's should be taken off the dededuction list, as they are not useful as a working vehicle." That is simply not true. The people you mentioned - contractors, surveyors, etc. can use SUVs in much the same way as pickups. SUVs offer flexibilities that pickups don't. I spent 15 years in telecommunications maintaining mountaintop radio facilities. My primary vehicle was a 3/4 ton Suburban. I carried almost $200K of test equipment and spare parts in the back of it. I also used to tow a 6,000 lbs. emergency mobile communications system and generators. Some of our people drove Explorers because they didn't need the capacity I had, but they needed the off road capability to do their jobs.

Perhaps your podiatrist doesn't need a Hummer for work, but if he can write off a vehicle, I really don't care what he chooses to drive.

 

2 things
1-be careful of complaining about taking advantage of loopholes or incentives. How many Prius drivers would have bought a prius without the $3150 tax credit. I probably would have bought one any way. Some tax "incentives" we like, some we don't. I'm sure that there are people out there complaining about subsidizing our Prius purchases with their tax money.

2-There has been some local (SFO bay area) and state (CA) government people floating the idea of having everybody register their mileage and pay a per mile tax. Some people think that those of us with high MPG cars are not paying our fair share.

 

<div class='quotetop'>QUOTE(Stan57 @ Sep 6 2006, 05:38 PM) [snapback]315511[/snapback]</div>

I've heard about those mileage-tax proposals! If you're for higher taxes, it makes sense. I'd rather keep the incentives for higher mileage and cleaner burning cars (which gas taxes help encourage).

I actually delayed buying my Prius until after Jan. 1 ... was on a waiting list from August of 2005 ... to take advantage of the tax credit. So even though I would have bought a Prius anyway, I did take the financial bait to wait until the credit was available.

 

<div class='quotetop'>QUOTE(Curtis SAC @ Sep 6 2006, 12:10 PM) [snapback]315331[/snapback]</div>

I agree with some of what you are saying, but as for the accelerated depreciation - since it applies to vehicles in excess of 6000 pounds I believe encouraged a lot of business owners to buy large vehicles they really didn't need (I know of several of these folks personally). In addition, it raised the deduction to $100k.

Overall, tax policy - to the extent we use it to social engineer - ought to at least serve a national interest. In this case it largely served the personal interests of individual small business owners (I admit there are a lot of other similar problems elsewhere in the tax code, but that doesn't make it right).

I'm no accountant, but it seems to me the accelerated depreciation of this dollar amount could provide a substantial benefit to the smart business owner, since they could use the tax break to qualify for a lower marginal tax rate than they might qualify for under a straightline depreciation scenario. In addition, many business owners would likely income shift from one year to another in order to maximize the income for which they could lower their marginal tax rate.

 

SAC --

You seem to be mixing things up (and perhaps Markey is too; I have yet to read him).

The outcry over the tax loophole encouraging soccer moms to drive hummers worked like this:

Section 179 allows deductions of property expenses used in business. In 2003, vehicle deduction was capped at about $15K *total* (unrelated to time schedule), but light trucks over 6000 gross weight were capped at $100K, and that entire amount could be deducted the first year the vehicle was put into service.

So ignoring the significance of larger first year deduction amounts as savings for the consumer (which do exist, but for another post), the reason to close the loophole was the cap difference.

At least that is my understanding. IANAAccoutant, but this guy is:
PDF explaining how to use the loophole.

Perhaps you do not believe accountants, so here is an IRS tax guy:

There are additional subtleties related to IRS tax section 179 that allow even more exploitation, related to bonus depreciation and end-of-year purchase strategies. Let's ignore the players for a moment, and just consider Joe and Susie Schmoe for a moment, out to buy a new SUV. They consider a midsize costing 30K, or a monster for 45K. Assuming the 33% tax bracket for ease of calculation, Joe can save 5K off the lil SUV (1/3 of the max 15K) , or 15K (1/3 of 45K) from the monster. Which vehicle do they choose ? Many chose the boat, and taxpayers contributed $10K along the way.

Suffice it to say that this loophole ('amended' or not) is not an illusion, and it *is* a LOT of money.