plianides

Back in October 2003, there was a proposal to cap the deduction at no more than $25,000 per year. Not sure if or when it may pass. http://www.ohio.com/mld/ohio/6985621.htm?1c. See article below:

"WASHINGTON - An effort in the Senate to cut tax deductions for small businesses that buy sport utility vehicles is running into opposition from automakers, who say the deductions should be expanded.

The Senate Finance Committee quietly voted this month to cut the amount small businesses can deduct for buying an SUV from $100,000 to $25,000. The bill is now headed for the full Senate, where some lawmakers have called for a complete repeal of the deduction.

The deduction applies only to vehicles that are 6,000 pounds or more.

Eron Shosteck, a spokesman for the Alliance of Automobile Manufacturers, said Friday that instead of making the deduction smaller, Congress should expand it to all types of vehicles. As it is, he said, the deduction is unfair.

"The net effect is it ends up discriminating against small business people who would use a sedan to conduct their business rather than something larger," he said.

But Taxpayers for Common Sense, an independent watchdog group that opposes wasteful government spending, says closing the loophole would generate $1.3 billion in revenue over 10 years.

"While this Hummer of a tax break needs to be run over and killed, shrinking of it is a good first step," said Keith Ashdown, the group's vice president of policy.

Tax deductions for trucks and SUVs first appeared in the mid-1990s and were meant for farmers and other small businesses that needed large vehicles. The amount of the deduction at the beginning of this year was $25,000, but it grew to $100,000 this summer as part of an economic stimulus package."

UnCaL

Interesting discussion! I am a CPA/ABV, and have just emerged from my 22nd "tax season". I have also taught college tax courses, and am a student of tax law.

BTW, I currently drive this ...




and I'm here to learn about the Cayenne, a possible replacement for the ML.

First, we all know that immediate expensing of an SUV under Sec. 179, Sec. 168(k), etc. simply accelerates a deduction into one year that would otherwise have been taken over several, e.g. 5 years. Other than the time value of money, and assuming your marginal rate stays the same, the deducion over 5 years vs. one is the same.

I'm particularly interested in alternative tax systems. All countries I'm aware of with a VAT also have an income tax. To say that the "FairTax" proposal repeals the 16th Amendment is fine, as long as you understand that the income tax can be returned to law just as easily. I say VAT because a National Sales Tax collected at the retail level has historically been easily circumvented, whereas a VAT applied at each level of production has proven more reliable. Think "Underground Economy".

If you are interested, a country-by-country tax system comparison is here . Also, a brief comparative commentary is here .

FairTax states here that a National Sales Tax of 23% will be necessary to replace the revenues of an abandoned income tax. There are three flaws to this statement. The first, mentioned here , is a computational error of 7%, making the actual rate 30%. The second error is in the disregard of state tax laws that piggyback the federal system, i.e. what will your state's response to the change be? Thirdly, the proposal implies simplicity that will not be realized. Consider the current corporate shelter-of-the-day, purchasing infrastructure from municipalities and leasing it back to them in return for huge paper deductions. How easy do you think it would be to circumvent a National Sales Tax? Also, how many retailers out there are anxious to accept responsibility as collection agent for the federal government?

Of course, there is the problem of explaining to the Baby Boomers that their (taxed) savings will now be taxed again as they make purchases. "It will take an enormous grass roots movement to get it done." ... No kidding! THAT's an understatement! There are other considerations, such as the longevity of charitable organizations that will no longer receive tax-favored status or contributions, the exemption of estates from tax (and don't say that estate assets have already been taxed - most haven't because of unrealized capital gains), inflationary pressures, the arbitrary "line" of the VAT (i.e. is food exempt? All food? How about Lobster? Is rent exempt? Are services exempt?), etc.

Although I have to smile at the collective fervor of physicians trying to gain tax favor from as many Porsches as possible, I'm interested in your thoughts of improving the "system". However, the larger problem is the future viability of Social Security, not the income tax.

While discussing various tax systems, one means of comparison was offered by Adam Smith in the "Wealth of Nations", 1776 ...

1. "The subject of every State ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the State."
2. "The tax each individual is bound to pay ought to be certain, and not arbitrary. The time of payment, the manner of payment, and the quantity to be paid, ought all to be clear and plain to the contributor, and to ever other person."
3. "Every tax ought to be levied at the time, or in the manner in which it is most likely to be convenient for the contributor to pay it."
4. "Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible, over and above what it brings into the public treasury of the State."

Finally, contrary to popular belief, I have no "vested interest" in the current system. I have many talents. I also whince when I pay my estimates. Thanks.

ljugete

UnCal, That was very interesting. Thanks for your comments.

Torags

Hey, Uncal great post and Kudos to Adam Smith.

The use of tax shelthers used to incentivise investment into areas where the govt thought necessary for the common good (Like accumulated depreciation for low cost housing an area where smart investors fear to tread).

Many people think of a tax shelter as a gift (it's simply time/value of money issue). A tax credit is closer to a gift. Owners don't realize if they take 100% deprec & sell their car in 3 years, they have to pay taxes on the sales proceeds (unless traded in).

BTW, you've got to upgrade your car... ;-)

DC from Cape Cod

The trade-in value or sales price is treated as earned income.

If you trade in and then buy a new qualifying vehicle, the new vehicle is treated the same as the trade-in was treated when it was purchased. The new vehicle will offset the trade-in but any difference between the two values will be added to or deducted from income (after adjusted for % business use) for that tax year.

johnhct

Do you honestly think that once the IRS is abolished, that it could be EASILY reinstated? What politician would be willing to commit political suicide by suggesting we reinstate the most hated institution in the Federal Government.

I don't understand how sales taxes are easily cicumvented. I just paid $7000 sales tax on my Cayenne. If it could have been easily circumvented, I'd love to know how.

A significant amount of every dollar we spend today goes to support the current tax system. Once it is abolished, prices will fall. Some say by as much as 30%. I dont know if I believe that, but they will fall.

The cost of compliance is currently estimated at $600 Billion. A large percentage of that goes to accountants. Since 45 states already collect sales tax, only five will ave a new burden. The others simply adjust their rates.

I, too, agree with Adam Smith.

"The tax each individual is bound to pay ought to be certain, and not arbitrary. The time of payment, the manner of payment, and the quantity to be paid, ought all to be clear and plain to the contributor, and to ever other person."

I think that perfectly decribes a Sales Tax. It certainly does not describe our current ridiculous mishmash we call a tax system.

It is interesting that you ave emerged from your 22nd tax season and still say you have no vested interest in the system. The three groups most vocal in their opposition to this idea are accountants, tax lawyers, and IRS employees. Judging from the length of your post, it seems you do have some interest in preserving the status quo. To paraphrase Shakespeare, "Methinks he doth protest too much." I am sure if I were an accountant, I would be opposed to this as well.

UnCaL

Yes, I do, John. Once the public finds that the "National Sales Tax" must be more than 23% - say, 50% per an article here by the Brookings Institute, they will long for the "good old days". The public has a funny way of deciding what is and isn't in their best interest, and politicians know that.

OK. Form an LLC in a state with no vehicle sales tax, such as Wyoming. Purchase the Cayenne thru the LLC, have it licensed in Wyoming, and you're done! John, your homework for tonight is to survey PGA players who have RVs registered in Wyoming, but don't live there. Also, Google "Sales Tax RV" and see how many Wyoming law firms actually specialize in this.

Another sales tax avoidance scheme snared Dennis Kozlowski, the former Chairman, President and CEO of Tyco International Ltd., involving sales tax avoidance on artwork. Stupid scheme, particularly for someone as wealthy as Kozlowski, but apparently he had lots of company. Here is an article describing the probe of "hundreds" of others doing the same thing. Here is another article describing Sales Tax Avoidance in general.

Of course, given the nationwide sales tax your organization promotes, other schemes would be created and flourish, just as they do now in VAT countries such as the UK. Articles describing the UK's efforts against VAT avoidance schemes are here and here , with Vodafone's tax avoidance scheme detailed here . What is the UK's response? To require Tax Avoidance Schemes to register as such! Read about it here . My point is this - people WILL cheat the system, and FairTax needs to take that into account. Most of the attacks against FairTax have to do with just that. You DID read the articles I linked, right? And, I DID mention that the UK has a VAT AND an income tax, right?

Based on my readings, prices will more likely rise by at least 50%. Please provide links to your research, so we can keep this out of the realm of "This is what I think".

AH! We finally agree on something! Please note that I presented Smith's four criteria as a means of comparison. I did not say the current system fulfills all four.

As I mentioned (explicitly and implicitly with the inclusion of "ABV" after CPA - think "M&A", "Buy-Sell" and "Equitable Distribution" work), I have other talents. To be honest with you, John, personally I would prefer a Consumption Tax. The idea of taxing what you spend, rather than what you earn, is conceptually appealing to me. What I haven't seen is a viable plan for getting there.

If you're really behind the idea, you would serve your cause better by citing independent facts and figures, and by showing us at least one example in the modern world where your idea works. Quoting Shakespeare out of context and tossing out vague "conspiracy theorys" just doesn't cut it. Its hard to discuss complex things in ten words or less. I did try to limit my text, and omitted other equally important things, such as the effect on your property tax when your community has to pay market rates for General Obligation Bonds to pay for new schools because "Muni" interest is no longer tax free.

Let's be clear about one thing - I'm not a fan of the current system. Many of the problems, e.g. the AMT, are throwbacks to prior periods of abuse that no longer exist. Since '86, the shelters that the AMT was designed to attack no longer exist. Also, a great deal of the code has nothing to do with good clean theory, and everything to do with spineless politicians. Politicians, as you say, don't want to raise the tax rates, so they do an "end around" with things like limitation of exemptions and itemized deductions for high-income individuals, a net cap of $3000 on Capital Losses, limitations of Investment Interest Expense, and so on. Are there income tax avoidance schemes? Of course! Just understand that a Sales Tax or a VAT can also be manipulated.

Also, as I alluded to in the earlier post, the REAL problem in the next 10-15 years will be the fiscal collapse of Social Security. Once Washington's period of denial finally ends, you will see either significant increases in payroll taxes or benefit limitations. Alternative tax plans come and go (seemingly, always around election time). Too bad no one has the testicular fortitude to address the emminent Social Security problem.

Again, sorry for the length of my posts. I'm not picking on you John - I just want your ideas considered in the daylight of reality. Also, I'm only a guest here, as I'm simply considering the purchase of a Cayenne. Since I don't own a Porsche, I had hoped to contribute in other ways to what seems to be a really good forum. If I've overstayed my welcome, I apologize.

ljugete

UnCal,

I suggest that you trade up to a new Cayenne S or TT and become a Rennlist and Porsche Club of America member. You won't find a better bunch of guys / friends anywhere!

PORSCHE, There is No Substitute!

You will not be disappointed.

UnCaL

Thanks for the welcome, Frank! Didn't mean to ramble about that tax stuff.

I'm basically lurking and learning. I have experience wih introductory SUVs ...



and want to learn more about the Cayenne, especially owner's experiences. For now, the ML is running strong for a 7-yr old truck with 171k miles!

ljugete

171K miles! WoW!

Looks like you got your moneys worth.