Loophole in gas-guzzler tax saves SUV makers billions, study finds

WASHINGTON - A loophole exempting light-duty trucks such as sport-utility vehicles from a federal tax on gas guzzlers enabled automakers to avoid up to $10.2 billion in taxes last year, even as production of more polluting, inefficient vehicles rises, according to an environmental group.

Under a 1978 law passed by Congress to encourage production of fuel-efficient vehicles, U.S. and foreign auto manufacturers must pay taxes ranging from $1,000 to $7,700 for each new passenger car that gets less than 22.5 miles per gallon on a combined city-highway average. Light-duty trucks, which include pickups, minivans, full-size vans and SUVs, were exempted on the theory that many were used in businesses or on farms. At the time, these vehicles made up about a quarter of new-vehicle sales.

Now, however, light-duty trucks are almost half of all new sales, and are frequently used more for commuting and other daily chores. The study released yesterday by the Washington-based nonprofit group Friends of the Earth concluded that if these vehicles were held to the same 22.5 mpg standard, the industry as a whole would have paid the federal government $10.2 billion in additional gas-guzzler taxes in 1999 - and $43.1 billion over the past five years.

Environmentalists said the loophole acts as a subsidy for larger vehicles that burn more gas and cause more pollution.

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

Taxes that could have applied to SUVs alone in 1999 amounted to $5.6 billion, the study found. Pickup trucks avoided $3.9 billion in taxes, and vans and minivans, which tend to be more fuel efficient, $811 million.

Meanwhile, the Internal Revenue Service collected $48 million in gas-guzzler taxes on passenger cars in 1998 - the most recent year for which complete data was available - mainly on luxury sedans and high-end sports cars.

The U.S. auto industry has acknowledged room for improvement in the fuel efficiency of SUVs. Ford recently announced it will increase the fuel economy of its SUV fleet by 25 percent, from 18 mpg to 23 mpg, by 2005. General Motors says it will offer pickups and buses that burn up to 50 percent less fuel, and DaimlerChrysler has a gas/electric version of its Dodge Durango SUV ready for market if it can be priced competitively.

Gloria Bergquist, spokeswoman for the Alliance of Auto Manufacturers, which represents 13 major U.S. and foreign auto companies, said extending the gas-guzzler tax to light-duty trucks would raise costs for consumers while not hastening the availability of more fuel-efficient, less polluting vehicles.

"Automakers are already competing with each other to bring more fuel-efficient vehicles to market," she said. "Our view is that competition is going to drive more progress."