How the Government Enabled the SUV Craze

Far be it from me to criticize anyone in government. (Yeah. Right.) But there's something that's been on my mind ever since people started piling on the auto industry, and this comment from Rahm Emmanuel [1] brought it back to mind.

The president's chief of staff criticized U.S. car companies Sunday for relying too long and gas guzzlers and not investing enough in alternative energy vehicles.

Rahm Emanuel also said the automakers have an outdated health care cost structure. He said the companies are making the kind of changes now that many people long had told them to make.

President Barack Obama's auto industry task force is trying to restructure General Motors (GM) and Chrysler by a March 31 deadline. If the Obama administration fails to approve their turnaround plans, earlier loans could be called back and the companies could be forced into bankruptcy.

..."They never invested in both alternative energy cars. They got dependent on big gas guzzlers. They didn't do — they have a health care cost structure that's outdated," Emanuel said, repeating the administration's premise that health costs must come under control or else risk breaking all other pieces of the budget.

OK. I'll be the first to say the auto industry has made some huge mistakes and some horrible business decisions. (I still haven't figured out how or why it is that equally destructive decisions and business practices on Wall Street didn't get half as much of an angry response as the auto industry.) But this is one they have some help with.

Help from the U.S. government, that is.

Our national oil consumption has been compared to an addiction. And in general behind almost every addict is an enabler — someone who, by supplying the addict either the required intoxicant or enough cash to ensure the addict can get that much-needed next hit, ensures (intentionally or not) that the addiction continues. Usually, it's either because the enabler profits from the addiction, or doesn't want to deal with an addict in withdrawal.

So, if you're going to fault Detroit for selling gas guzzling tanks (or consumers for purchasing them), you also have to fault the government for enabling them to do so by subsidizing them. Anyone with any experience with addiction and recovery will tell you that as long as an addict is ensured steady access to another fix, addiction continues. You can either support someone's addiction or their recovery, but not both. In various ways, over the last decade, our government supported the former at the expense of the latter.

I remember when I knew the government would step in to the role of enabler. It was shortly after 9/11, but before the steady drumbeat to go to war with Iraq drowned out everything else. A few voices raised the question of wether it might be an opportune time to consider reducing our dependence on foreign oil, through changing our "way of life" and moving towards energy efficiency and conservation.

It didn't last long. I knew where we were headed when, while channel surfing one day, I came across a commercial that had me shaking my head [2].

I don’t remember if it was a GM commercial, but I remember one that featured a bevy of gas guzzlers, billowing flags, and an enthusiastic chorus singing, “Keep on rollin’! Keep on rollin’! Woo, hoo, hoo!” I shook my head, because it seemed clear that people didn’t get it, and were absolutely committed to not getting it. The president did tell us that that the best thing we could do for our country in that moment of crisis was to go shopping (read, acquire more debt), but the last thing we needed to do was increase our oil dependency by purchasing even more fuel-inefficient vehicles. The last thing we needed was for the government to subsidize the sale of those vehicles.

(Of course, now we know that debt we were basically told to acquire was sliced, diced and sold between various financial firms in an utterly unregulated derivatives market with no oversight. Thus now we're buying it all back, probably at a loss, and bailing out the same firms. All of which suggests and addict/enabler relationship with Wall Street, but that's best left to another post.)

It was practically our patriotic duty [3] to buy one of these vehicles, or at least support their production and purchase.

A month after the terrorist attacks on the United States, Madison Avenue is wrapping itself in red, white and blue in an outpouring of patriotism not seen in mainstream advertising since World War II.

Already, though, there are complaints about the inappropriateness of using profound symbols for commercial purposes from critics who are concerned that the trend is more jingoistic than patriotic and more exploitive than altruistic.

The flood of patriotic imagery ranges from American flags and tricolored bunting to fireworks and renderings of the Statue of Liberty and Uncle Sam with their sleeves rolled up, ready to fight. The phrase "United we stand" is being seen almost as often as "Clearance sale," and "God bless America"' is being heard almost as often as "''"And now, a word from our sponsor.""

The terrorist attacks on the World Trade Center and Pentagon stimulated a revival of patriotic fervor among consumers that was echoed within hours by marketers, advertising agencies and media companies. Flags were unfurled in television commercials and print ads as well as on Web site banners, signs and billboards. Broadcast and cable networks like NBC and MTV began draping their logos and studio windows in stars and stripes as publications from Parade to Premiere added flags to their covers.

The patriotic pitches are coming from companies large (Anheuser-Busch, General Motors, Kmart), small (Manhattan Mini Storage, National Wholesale Liquidators, Top Tomato and Key Food supermarkets) and in-between (Kenneth Cole, Florsheim, Lands' End). Some are not companies at all but organizations and associations like Major League Baseball and Cotton Inc.

...The nation's No. 1 auto maker, General Motors, is running a campaign infused with patriotic elements to promote a zero percent financing program. A TV commercial began with an announcer reciting: "The American dream. We refuse to let anyone take it away." A print ad ended with these words: "This may very well be the most serious crisis our nation has ever faced. In this time of terrible adversity, let's stand together. And keep America rolling." Indeed, "Keep America rolling" is the theme of the campaign.

"Keep America rolling? More like keep 'rolling' America [4]," is what I thought at the time.

rolled   
To be ripped off or robbed. This usually occurs at gunpoint, but can sometimes be achieved by craftier methods.

Well,"rolled" we got. Near as I can tell, it began with a loophole that gave SUV buyers a tax break [5].

As a result of a quirk of federal tax law, business owners are allowed to depreciate SUVs and pickups more quickly than cars. The discrepancy has been around for nearly two decades, but it is getting new attention amid the soaring popularity of SUVs and pickups as suburban people-movers. As the end of the year approaches, the tax break gets particularly popular, since business owners often are in the market for ways to cut their taxable income.

The deduction stems from the long-standing and somewhat bizarre classification of SUVs as "light trucks" rather than "cars." That means a tax break that was at least partly intended to help farmers buy pickup trucks is now being applied to today's quintessential suburban passenger vehicle.

The law gives people who qualify an immediate deduction of as much as $24,000 -- which grows to $25,000 next year -- off the price of an SUV. Plus, until 2004, there is a bonus deduction of 30 percent of the rest of the cost of the truck. Both these deductions are on top of the regular five-year depreciation that would apply to light trucks bought as business transportation.

The only catch: To get all these breaks, you have to buy a truck that weighs over 6,000 pounds. The Chevy Suburban makes it, but the Chevy Blazer does not.

...Despite hand-wringing in Washington over U.S. dependence on foreign oil, the tax deduction for fuel-thirsty light trucks is larger than existing tax breaks for fuel-efficient cars. Owners of hybrid gas-and-electric cars -- Honda Motor Co.'s hybrid version of the Civic, and Toyota Motor Corp.'s Prius -- get a $2,000 tax deduction. Proposals to boost the hybrid tax break were part of a Senate energy bill that stalled this year.

For now, however, the light-truck tax break remains on the books. Several dealers contacted were unaware of it -- but eager to find out more to use it as a sales tool.

Not only was it a loophole big enough to drive an SUV through, but too small to drive a Prius through. Naturally, the possibility of a tax break for hybrids was pretty much DOA.

That was bad enough. You might think that after 9/11 such a loophole, having been "rediscovered" and shoved into the spotlight for a hot minute -- when reducing our dependency on foreign oil by making changes at home was not yet among those things that were all but "unsayable" shortly after -- would be on the top of any administration loopholes to tighten up. You might think that. But you'd be wrong.

But by 2003, Bush had written a tax break for SUV buyers into his stimulus plan [6]. (What ever happened with that one, by the way?)

Buying big, luxurious sport-utility vehicles could cost a lot less under the Bush administration's economic stimulus proposal, even though a Bush appointee blasted SUVs last week as dangerous fuel hogs.

Small businesses and the self-employed could deduct the entire cost, up to $75,000, from business income the year of the purchase. Normally it would be written off over several years, using a depreciation schedule. Deducting the entire cost in one year considerably reduces that year's taxable income, and income taxes. In some cases, it could result in paying no federal income tax.

A similar deduction in the current tax code is limited to $25,000. Tripling that creates a much more alluring incentive at a time when SUVs are under fire for fuel consumption and safety concerns.

...As a result, an accountant who'd do fine with a 30-mile-per-gallon compact sedan as a company car could be enticed into a big, 15-mpg SUV instead because of the deduction. Or a real estate agent about to buy a 20-mpg midsize SUV that doesn't qualify for the deduction might opt for a full-size SUV instead, because it does qualify.

Taxpayers for Common Sense (TCS) estimates that the current deduction cuts tax revenue $1 billion for every 100,000 SUVs, and vows to lobby against tripling the amount. "The market for personal-use SUVs has outgrown the original intent of this tax break," says Aileen Roder of TCS.

"When a loophole gives an accountant an incentive to deduct the cost of his luxury SUV, it makes the argument of how ridiculous" it is, says Jonathan Collegio of Americans for Tax Reform.

During furious SUV sales last month, "We did have some people coming in saying, 'My accountant told me I better buy something,' " says Chevrolet dealer Jerry Haggerty in Glen Ellyn, Ill.

Rather astounding. Isn't it? But he put it in there, and Congress passed it [7].

This year, the perks of buying a large SUV if you're a small business owner got even bigger.

Congress recently passed a tax bill, as proposed in President Bush's economic stimulus plan, that offers a $100,000 tax credit for business owners who purchase any vehicle weighing 6,000 pounds or more when fully loaded.

...Meanwhile, legislation that offers a much smaller tax break a $2,000 tax deduction to those who purchase fuel-efficient hybrid cars is on track to be phased out. Congress is considering legislation that would extend the tax deduction to encourage consumers to buy the hybrid cars, but the status of the bill remains uncertain.

Even though the large vehicle tax credit applies only to the self-employed while the hybrid car tax deduction applies to anyone who buys a hybrid, the stark contrast between the two amounts has environmentalists crying foul.

It was a different time, granted. It was a time when, in a fit of what I (and plenty others) called "Prius envy," [8] SUV owners cried foul over even a modest incentive to encourage hybrid ownership [9].

[T]here is a kind of non-violent, low-level road rage building out here, and it has to do with special privileges for owners of hybrid cars like the Toyota Prius. It's been dubbed, "Prius Backlash."

First, the background: Under legislation signed by Gov. Arnold Schwarzenegger, drivers of the highest gas mileage hybrids -- only certain Toyotas and Hondas -- can now use California carpool lanes even if the driver is alone. If you try using those lanes alone in your Escalade, or even your Jetta, you'll get pulled over by a cop on a motorcycle, and the minimum fine is $271.00.

So not only is that nerdy guy you made fun of in high school now getting 52 miles per gallon, he's getting special treatment from Arnold himself, which allows him to zip past you in the carpool lane, while you sit stuck in traffic.

And here's the complicating factor: Not only is this a special privilege for people who buy certain cars, but the hybrid owners, as a group, have a reputation for driving slowly. Sometimes maddeningly so. That's because they get better gas mileage at lower speeds, and if they didn't care about gas mileage, then they wouldn't be driving a hybrid in the first place.

This is why Prius drivers like Jane Velez-Mitchell (Yes, the TV legal analyst who sometimes appears on CNN Headline News) say they've been yelled at, honked at, cut off in traffic and generally messed with.

The hybrid drivers were pretty much alone in ... well, whatever made them buy such puny, little cars and cruise down the road, taking their sweet time, instead of getting out of the way of the bigger vehicles on the road.

Hostility towards Hybrid owner for?... What?

And the hostility escalated from yelling and honking horns to actual attacks on hybrids, and hybrid owners [10].

Unfortunately, some of the hatred directed against Prius drivers doesn't end with words. In the most brutal of a spate of violent attacks against the hybrids and their owners this year, someone torched a six-month-old Prius parked on a residential street in Los Angeles seven weeks ago.

The extent of the damage is evident in the photo above.

The car's owner said she heard an explosion at about 7 one Friday morning in July, quickly followed by the screaming sirens of fire engines.

"I went outside to see what was going on and saw it was my car," she said.

Fire investigators concluded that the blaze was the work of an arsonist. No other vehicles in the area were torched.

Attacks on Priuses in the U.S. aren't new. There was a spate of Priuses being "keyed" in Las Vegas in 2004.

But until this year, the violence against them hadn't been so brutal.

In Petaluma, California, a fairly quiet city of 55,000 north of San Francisco, at least seven Priuses were damaged during a two-week rampage in April.

...[Toyota spokesman John Hanson said] a Prius ... makes a very strong environmental statement, and if you are a person who might be perturbed by the whole environmental movement, you might feel justified in taking out your anger on a Prius. "I have a neighbor like that," he said.

Another possible motive, he said, is the envy/disdain Prius drivers incite in other drivers. In California, many hybrid drivers can legally drive in carpool lanes without any passengers.

"For people who are sitting in traffic in an SUV, to see a Prius go by with just a driver in it -- maybe there's some resentment there as well," he said.

Funny world we were living in-- in Dubya's America -- as I noted then.

If nothing else it balances out the fact that people can still get tax-breaks for buying SUVs [11], up to $25,000 if you can write it off as a business expense. Compare that to the reality that hybrid owners can only get a tax credit of up to $3,400 [12], which phases out for eligible cars [13] once the manufacturer sells over 60,000. (Apparently, Bush supports lifting the 60,000 limit [14]on hybrids eligible for tax-credits. We might actually agree on something. Shocker.)

In the meantime Senate Republicans are caving to the oil industry [15] — which just reported record profits [16] — and scuttling their tax proposal [17] to offer some relief on gas prices, even as 10 states — including California — are suing the federal government to strengthen gas milage requirements for SUVs [18].

And hybrid drivers are the ones being picked on here?

It seems to me that this add up to the government basically subsidizing SUVs in a way that it doesn’t for hybrids, or at least to a much greater degree than it does for hybrids. So, I’m not sure what SUV-drivers have to honk about.

Of course, it wasn't long before gas prices caused SUV and truck sales to tank [19], some SUV owners tried in vain to sell their gas guzzlers [20], and some desperate owners set fire to their SUVs [21].

Where do things stand now?

Well, in 2004 Congress passed and Bush signed the American Jobs Creation Act (How that work out, by the way?), which included provisions that didn't so much close the SUV tax loophole as shrink it somewhat, by limiting the $100,000 write-off to vehicles weighing 14,000 lbs. or more, and leaving SUV owners with just a $25,000 tax break [22]. (Still pretty good, if you're paying $40,000 to $50,000 for the vehicle, and take depreciation expense into consideration.) 

In 2006, Rep. Ed Markey (D, MA) introduced the "No special Tax Subsidies for Gas Guzzlers Act of 2006," [23] which would eliminate the tax break for for everyone except those can show these particular vehicles are essential to their businesses, rather than leaving it open ended for anyone who can claim to be a businessperson. The bill landed in committee and never moved again [24], near as I can tell.

In 2007 courts rejected Bush's lax fuel-economy standards for SUVs [25].

And yes, gas prices have come down and SUV sales have picked up [26] again. That just means we got the next fix just in time, but not without experiencing the "sickness" that junkies experience when the next fix doesn't come soon enough. It doesn't mean that the bigger problem is solved, but that the so-called "sickness" of withdrawal has lifted. For now.

But the real sickness lingers, strong as it ever was.

And, as anyone with experience in addiction and recover knows, enabling it only makes it stronger.

Jane, the hybrid owner from the CNN article linked above put it another way.

Some advice: Don't mess with Jane unless you want an earful.

"I do get hostility, especially from SUV drivers," she told us. "And let's face it, they've made a really bad choice in their vehicle. ... If your little Prius is standing in the way of their Escalade, they get angry. Well, that's not how it works. Just because you drive a big Escalade doesn't mean you're more powerful or more important or should be able to get in front of me."

Which brings me all the way back to Rahm, to whom I would just say this: Go ahead and hold people responsible for making "really bad choices." Just don't forget, some of the blame can and should be placed at the doorsteps of those who enabled those choices, making them more profitable and thus easier to keep making.