OF COURSE you've heard the horror story about the welfare recipients who drive late-model Cadillacs. The story turns out to be true. Except that the recipients in question aren't welfare mothers but business mothers and fathers-- wealthy business people and professionals. They tend to drive a Mercedes-Benz or a Rolls Royce rather than a Cadillac. And they pick up their government benefits at the Internal Revenue Service rather than their local welfare office. But except for that, the story is pretty much as you heard it.
Ever since enactment of the 1981 tax bill, people who buy luxury cars for primarily business use have been able to get the Treasury to pick up a major part of the tab. Thanks to a 6 percent investment tax credit and the ability to write off a car in three years, the buyer of a Rolls, for example, might realize over $65,000 in tax benefits in three years. "With these kinds of figures," advertises one car dealer, "a luxury isn't a luxury. It's a wise investment."
That "investment" looks even better when you consider that a high-priced import will hardly degenerate into a pile of scrap metal in three years, as the tax law now supposes. Even the average car loses only about half its value over four years, and a top-of-the line Mercedes, for example, may lose as little as 10 percent. The lucky purchaser, having realized all his tax benefits in three years, can then look forward to years of private use.
Reasoning that the public has no interest in subsidizing tastes for luxury, Rep. Fortney Stark and Sen. Max Baucus succeeded in adding limits to the tax bills now in conference. Business people could still claim tax benefits for luxury cars, but only up to a limit--$21,000 in the House bill, $15,000 in the Senate. The Senate rules, which wou save $2 billion over the next three years, also require that the car be used for business 90 percent of the time.
But even before the conference met, certain senators had made subtle inquiries as to whether both houses might not simply agree to drop the limits entirely. What concerns them, of course, is not the possibility that executives might be forced to drive Chevrolets. No they're worried that a limit of, say, $21,000 would damage trade relations with the Germans and British, who make most very-high-priced cars. That's silly. No foreign country can seriously argue that because the United States made a mistake in its tax code that happened to benefit it, that mistake cannot now be corrected. And, as German representatives have noted, the discriminatory effect can be avoided by adopting the lower Senate cap and the 90 percent use rule.
For that matter, why not set the limit at $10,000, about the average car price? A reasonably priced car, truly needed for conducting a business, is certainly a legitimate business deduction. But people who insist on riding in a gilded chariot are not making an investment. They are indulging themselves. That's a choice they can freely make--and then pay for themselves.