Should The IRS Allow The Mileage Deduction?

June 25th, 2008 · No Comments · Subscribe to this feed

Doing my usual rounds reading various personal finance blogs yesterday, I discovered the IRS has raised the business mileage deduction to 58.5 cents per mile, up 8 cents per gallon over the past year. Obviously, as a small business owner or somebody who spends a lot of time driving for work, you’d be a fool not to deduct as much as the IRS allows. But I got to wondering…with the current budget deficit and our dependence on foreign oil what it is, should this mileage exemption even exist?

Double Dipping

From an accounting standpoint, it’s important to match revenue with the expenses required to generate them as much as possible. If generating revenue for your business requires driving a motor vehicle, depreciation of the vehicle must be accounted for to arrive at an accurate profit figure. No arguments here, but I have to wonder if a mileage deduction is the best way to accomplish this. A mileage deduction basically subsidizes driving and encourages excess gas consumption (and the resulting environmental pollution). With gas at $4 per gallon, this strikes me as a silly thing to incentize. It’s also unnecessary. Instead of allowing a per mile deduction, business owners should be required to depreciate their vehicle (or a portion thereof if used for business only part of the time) according to more traditional straight-line depreciation schedules and deduct the price of gasoline directly. By allowing a per mile deduction, the government is effectively subsidizing the cost of operating a motor vehicle far beyond the point where the true residual economic value of the asset has reached zero. A business owner who continues to drive a motor vehicle beyond its average life span is effectively driving for free on the taxpayers’ dime. Such deductions actively encourage waste at a time when we should be focusing on conservation. Many would argue that ditching the mileage deduction would unfairly penalize small businesses and discourage economic growth and they have a point. But I would argue the existence of the deduction to begin with has unfairly penalized the general public in the form of lower air quality and higher gas prices for decades now. And it has to stop sometime. There’s no time like the present. The tax code should not encourage harmful behavior.

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