SAN FRANCISCO (MarketWatch) - Tax breaks benefiting buyers of sports-utility vehicles fly in the face of a good energy policy and are costing American taxpayers billions of dollars a year, according to a report from Rep. Edward Markey.

"It is incredible that the Bush Administration and Republican Congress can be so blind as to leave these tax loopholes in place while our dependence on Middle East oil soars, the price of gasoline spikes, and our soldiers are mired a war in the Middle East," said Markey, a Democrat from Massachusetts.

The study, which includes estimates from the Joint Tax Committee of Congress and focuses on two policies favoring the purchase heavier vehicles over smaller models, showed that the tax breaks will cost $2.6 billion next year and $15.7 billion over the next 10 years.

The first break is the exemption light trucks and minivans get from the Gas Guzzler Tax, a levy imposed on autos rated below 22.5 miles per gallon. As an example, the report said an Audi station wagon that gets 20.5 mpg incurs a $1,300 tax, while a 15.8 mpg Jeep incurs no penalty.

Markey also criticized a policy that allows businesses to purchase SUVs and write off most or all of the cost of the vehicle on their income taxes in the first year. That amounts to a subsidy of almost $600 million a year, and $4.1 billion over the next 10 years, he said.

"This makes no sense. Congress is using the tax code to generate artificial demand for inefficient vehicles in the automobile marketplace," said Markey, who introduced a bill aimed at eliminating both tax breaks for SUVs.

"Regardless of whether we ever ramp up and modernize the minimum fuel economy standards, providing these out-of-date tax incentives that reward the purchase of inefficient vehicles just make things worse," he added.

Meanwhile, demand for the so-called gas guzzlers has fallen off steadily in recent years, a blow to domestic automakers that depend heavily on the full-size vehicles for profits. Truck sales at General Motors GM, -2.04% plunged 31.2% in July, while Ford's F, -0.82% fell 43.8%. See full story.

The decline led Ford to slash production 21% in the fourth quarter. GM will update its production plans Friday. See full story.