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Environmentalists and customers are clamoring, automakers are reacting and, of course, presidential candidates are doing their best to position themselves accordingly on consumer tax breaks for vehicles.
But regardless of all the hybrid hoopla, the U.S. government would still prefer that drivers climb behind the wheel of a fuel-quaffing SUV, given the disparate tax incentives.
Under current federal law, taxpayers buying hybrid vehicles like Toyota’s popular Prius or the recently unveiled Ford Escape are awarded a one-time tax deduction of $1,500. That’s down from $2,000 in 2003.
As it stands now, the deduction will drop to $1,000 next year, then to $500 in 2006 before being phased out altogether by 2007.
Clearly, the government’s effort at promoting hybrid sales is at odds with its much-more lucrative reward for buying the very vehicles the most fuel-efficient cars are aimed at dethroning.
And make no mistake; the throne belongs to SUVs, which make up more than a quarter of the entire new U.S. vehicle market — outselling hybrid models 4.3 million to about 48,000 in 2003, according to Edmunds.com. Discuss the auto sector.
But with plenty of bipartisan support, tax breaks for the electric- and gas-powered cars won’t be going anywhere, according to Kateri Callahan, president of the Alliance to Save Energy, a lobbying group based in Washington, D.C.
"Tax incentives for hybrids that are in place right now will not be allowed to sunset in 2006. They will most likely be kept as robust or even more than they are right now," she said. President George W. Bush and his Democratic challenger, Sen. John Kerry, propose that hybrid car buyers reap even higher tax write-offs of up to $5,000 and $4,000, respectively.
But the expected increase in hybrid tax breaks solves only part of the problem, according to critics who argue that something needs to be done about the controversial tax advantages reserved for buying sport-utility vehicles, like the Hummer.
The current policy allows small business owners to deduct up to $100,000 of the purchase price of trucks that weigh at least 6,000 pounds, more than twice the weight of a Prius.
Originally intended to help farmers and small businesses to buy work and delivery trucks, the rule is easily skirted by consumers as a means of discounting expensive SUVs.
"Why is the Bush administration giving a $100,000 tax deduction to the biggest gas guzzlers on the road, and letting the $1,500 tax deduction for fuel-efficient hybrid cars to phase out?" asked Sierra Club representative Brendan Bell. "The administration is telling car buyers that if they choose the vehicles that add the most to the country’s oil dependence, taxpayers will pick up the tab."
In January 2003, Bush initially proposed raising the allowable deduction from $25,000 to $75,000 to assist "every small business owner who purchases equipment to grow and expand," according to a White House statement.
By the time the final draft of the Jobs and Growth Tax Relief Reconciliation Act of 2003 was put to a vote, the tax break grew to $100,000 through 2005, to the further chagrin of environmentalists.
The bill narrowly passed by a margin of 51 to 50, with Vice President Dick Cheney stepping in to break the tie. Kerry voted "nay."
Last month, the Sierra Club captured widespread sentiment on the Hummer among environmentalists when the group launched an online parody of the General Motors’ ( GM [-]) metal and rubber behemoth, which gets somewhere between 10 to 13 miles per gallon on the road. Visit HummerDinger.com.
In comparison, the Toyota ( TM [-]) Prius averages about 52 miles per gallon, while the Honda ( HMC [-]) Insight averages about 66 miles per gallon, according to U.S. Environmental Protection Agency estimates.
Taxpayers for Common Sense, a self-proclaimed "nonpartisan budget watchdog" based in Washington, D.C., is incensed with what it deems a huge waste of taxpayer money. The group estimates that the "SUV loophole" will cost Americans at least $1.3 billion over the next 10 years.
While efforts to extend tax breaks for hybrid car buyers are poised to bring results, attempts at tinkering with the SUV tax rule have made little headway.
Keith Ashdown, vice president of policy and communications at the taxpayer advocacy group, said the chances are very slim that anything will be done in the near term to fix the "egregious, inequitable provision," regardless of who is president.
"It’s totally in flux," he added. "Nobody likes taking something like this away from the people without replacing it with something else." Of note, however, is that nearly as many hybrids have been sold through July 2004 as in all of last year. SUV sales have remained steady over the same period.
The current tax law is nevertheless an "anomaly" that the government really should reconsider, according to ASE’s Callahan.
"Providing tax credits to encourage vehicles that are large and inefficient relative to the fleet just isn’t good public policy," she said.
"If you’re going to use the tax structure as a market tool, it ought to be used to encourage behavior that’s good for society in general, because its society that’s paying the bill."
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