Mark Brandon is the Managing Partner of First Sustainable (http://www.firstsustainable.com), a registered investment advisory catering to socially responsible investors. In addition to Socially Responsible Investing (SRI), he may opine on social venturing, microfinance, community investing, clean technology commercialization, sustainability public policy, green products, and, on occasion, University of Texas Longhorn sports.

Wednesday, May 17, 2006

One Modest Suggestion To Ease Gas Prices

Back in the 1970's, Congress passed a bill giving small farmers a tax break when purchasing capital equipment, then defined as light trucks weighing 6,000 pounds or more. At that time, there were no passenger cars weighing that much, so the idea that it would be exploited by everyday car buyers and soccer moms was not even considered. The term "soccer mom" did not even exist back then.

As SUV's became the most profitable niche of the car business, carmakers exploited this loophole, and started using the tax break as an incentive to businesses to buy the worst polluters and gas guzzlers, even if the business person has no use for a light truck in his or her business. A dentist can purchase a $100,000 top of the line Hummer and escape approximately $33,000 in taxes.

As everyone knows, gas prices started rising, but the incentive remains. Now, that dentist might look at purchasing a more efficient vehicle to save a few thousand a year in gas. Or, he could stick with the SUV and save tens of thousands. We're not talking about trading in the Hummer for a Prius, either. Even though a Cadillac or Lexus sedan, for example, would save our hypothetical dentist thousands of gallons per year, those vehicles are ineligible for that tax break. It's not wonder that, at least so far, SUV sales still remain strong in the face of $3 gas.

Aside from pushing the burden onto taxpayers, which should be reason enough, the tax break has distorted the market for gas prices. Assuming that eliminating the tax break would affect behavior, replacing these gas guzzlers with more efficient cars could substantially reduce the pressure on demand for gasoline, benefiting us all.

In an admittedly rose-colored, possibly naive, sense, Congress could get this done painlessly by just writing stricter requirements into the definition of "capital equipment" or "light truck". The result is not a tax increase, nor a subsidy elimination. They could also portray it as an attack on high gas prices. It would just return the subsidy to its intended use. Practically, of course, there would be howls about "American jobs" from carmakers, auto dealers, and spoiled soccer moms, and it would remain to be seen whether our elected leaders have the will to eliminate corporate welfare that has a lot of fans.

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