WASHINGTON (Reuters) - Congress on Friday substantially widened a tax break that has been used by small businesses as an incentive to purchase the largest sport utility vehicles and pickup trucks.
Supporters including President Bush (news - web sites) said the business equipment tax break, which was quadrupled to $100,000 in the $350 billion tax cut bill that narrowly cleared Congress, is good for the economy.
But critics called it a loophole that unfairly benefits the auto industry and provides an unnecessary perk to business people who do not need, but want to buy the largest, most-polluting and fuel hungry SUVs.
"People will now do it because they are economically rational enough to go for the tax break," said David Nemtzow, president of the Alliance to Save Energy.
And legislators from some cash-strapped states with environmental concerns say they will close the loophole by disallowing it at the state level and charging back much of the deduction on state tax forms.
Oregon state Sen. Charlie Ringo said his "nullification" bill had passed two key House committees and noted that the New York and California legislatures were moving similar bills.
Even the auto industry was not behind the three-year initiative, saying it is too narrow. The deduction applies to vehicles that weigh more than 6,000 pounds when fully loaded with passengers and cargo, which includes those classified as trucks for tax purposes.
While the provision would exclude some of the most popular pickups and SUVs, it would cover dozens of other models, including the Chevrolet Suburban, the Hummer H-1 and the Ford F-250 pickup and Expedition SUV.
The three top-selling vehicles in the United States through April were pickup trucks. According to Ward's Automotive Reports, large SUVs account for about 5.3 percent of the U.S. market.
The incentive includes additional tax savings for depreciation and would allow businesses to write off the full cost of their vehicles in the first year of ownership.
Critics complain the provision widens a benefit originally intended for farmers and other truck-dependent businesses.
Auto manufacturers would prefer such a benefit cover a greater variety of vehicles.