According to a Detroit News story by Jeff Plungis, President Bush's economic stimulus plan could triple the size of a little-known tax loophole that some small business owners are using to finance purchases of large SUVs. According to the News, one of Bush's proposed tax cuts would raise from $25,000 to $75,000 the amount small business owners -- including doctors, lawyers and financial advisers -- can write off when buying an SUV for business purposes. Since the SUV loophole was first reported by The Detroit News, several consumer groups and lawmakers have raised concerns about the fairness of the provision. The debate signals more trouble for a popular vehicle segment crucial to Detroit automakers, whose profits have been sustained largely because of the SUV boom over the last decade, according to Plungis' article. According to the News, the idea behind the broader tax benefit is that small businesses can help revive the U.S. economy if they spend more. To encourage entrepreneurs to spend, Washington expanded the tax deduction for business equipment to $25,000 in 2003, from $17,500 in 1996. Bush's new plan takes the deduction limit up to $75,000. Tax relief for small businesses has widespread bipartisan support on Capitol Hill. But the administration's critics are focusing on equipment write-offs used to finance large luxury SUV purchases, says the News article. According to the News, the proposed $75,000 deduction on business equipment means that businesses choosing between a car and an SUV have an even bigger incentive to go for the SUV. Cars are not eligible for this deduction. The News article further says the Bush proposal comes on top of a stimulus bill passed last year in the wake of the Sept. 11, 2001, terrorist attacks that gave businesses an extra 30 percent accelerated depreciation on cars and trucks used as business equipment. Any remaining costs can be deducted on a regular depreciation scale of 20 percent in the first year of ownership. Small-business owners have been using the $25,000 equipment deduction to help finance purchases of trucks and SUVs. With vehicles in the $47,000 price range, such as the Ford Excursion, more than $30,000 of the purchase price can be deducted, reducing a small business tax bill by about $12,600. Raising the cap on business equipment to $75,000 will make it possible to write off the entire cost of vehicles such as the Hummer H2 or BMW X5 in the first year. A small-business purchase of a car, by contrast, might take 10 years to 20 years to fully depreciate, according to the story. In the weeks since the News first reported on the SUV tax break, there has been a flurry of activity among small-business owners wanting to claim the deduction.
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