SUV makers reap billions from tax loophole

Gas-guzzler tax exemption is a $10.2 billion subsidy for Most Polluting Vehicles.

provided by Friends of the Earth

new study from Friends of the Earth, "Gas Guzzler Loophole: SUVs and Other Light Trucks Drive Off with Billions," finds that auto-makers are exploiting a gaping loophole in the federal tax law that encourages production of more polluting and gas-guzzling vehicles. The loophole translates into billions of dollars annually for the most polluting vehicles light trucks and sport utility vehicles. You can view the report at

The study comes as controversy swirls around steep increases in gasoline prices. While many areas of the country are faced with dramatic price increases, automakers continue to marketing gas-guzzling sport-utility vehicles (SUVs) to consumers. Why?

The study suggests an answer: money. Tax money. While other cars are subject to the federal gas-guzzler tax, SUVs and light trucks are exempt.

"Automakers are avoiding paying taxes and cranking out polluting and gas-guzzling vehicles," said Brian Dunkiel, Director of Tax Policy at FoE. "It's not fair, it's bad for the environment, and it's making America more dependent on foreign oil."

Enacted in 1978, the gas-guzzler tax is a little-noticed environmental measure that applies to less fuel-efficient cars. Automakers must pay the tax on cars that get less than 22.5 miles-per-gallon. The worse the fuel efficiency, the higher the tax. However, SUVs and other light-trucks that get less than 22.5 miles to the gallon are exempt. If they were not exempt, automakers would pay more than $10 billion a year in taxes, according to the Friends of the Earth study.

"This is the single largest subsidy for pollution in the world," said Sean Moulton, Economic Incentives Analyst at FoE. "Why should a gas-guzzling SUV be exempt when a gas-guzzling sports car is not?"

Friends of the Earth found that General Motors and Ford Motor Company benefit the most from this tax exemption, each avoiding over $3.3 billion in taxes in 1999. Earlier this month, GM announced the company would focus on SUVs and light trucks for new vehicles.

Friends of the Earth researched the value of the exemption of light-duty trucks to auto manufacturers. This information could help explain why automakers are rushing to produce and develop new light trucks - especially SUVs. It could also help explain why these vehicles are being marketed so aggressively.

Friends of the Earth is a national environmental organization dedicated to preserving the health and diversity of the planet for future generations. As the largest international environmental network in the world with affiliates in 63 countries, Friends of the Earth empowers citizens to have an influential voice in decisions affecting their lives.