Wednesday, August 24, 2005

More on Hybrid Auto Credits

For those who are interested in learning more about the amount of the tax credit you would receive for buying a hybrid vehicle, see the following website, which contains a table of the estimated tax credits associated with each vehicle:

The Prius is tops in the currently available hybrid models at $3150. Its slightly less efficient competitor, the Honda Civic, fares slightly less well at $2100. Some of the new hybrids don't meet emissions targets, and they get nothing - "no credit for you!"

Since the credit does not begin until January 1, it will be interesting to follow what happens to hybrid car purchases in the interim. With four months until the new year, buyers motivated by gasoline cost savings will also pencil in the tax savings from the credit vs. a deduction. It will be clear that waiting until January makes sense, as the gasoline savings in the next 4 months is unlikely to match the value of the credit that would be obtained by waiting. That hardly provides a good policy effect -- in fact, it may reduce the number of hybrids that go on the road now when gas prices are high.

It would also be interested to look at the demographics of hybrid car buyers. I suspect that most come from upper income levels, and that many are purchasing these cars for the cachet associated with being environmentally friendly. An article in the Washington Post published a year ago indicated that the sex appeal of the Prius was driving its sales, while more conventional looking hybrids were lagging. See this link: , for an article that suggests the Prius is the preferred means of making a statement by what you drive. (I should credit here my friend Jeff, who bought a Prius a couple of years ago before this vehicle became so popular. In addition to being a visionary, Jeff is also a first-rate business lawyer. I must remember to follow his example more often.)

Though I think that it is a bad idea to incentivize the purchase of these vehicles through tax credits regardless of who is getting the credit, some readers will find it even less palatable if upper income groups are getting this largess to effectively subsidize a kind of fashion statement. I really don't care if people want to make statements, but I think taxpayer funds could be better used on other government functions. However, as long as our government is passing out goodies, you may as well structure your behavior to maximize the benefit. Here, that means waiting unitl January to close the deal. (If you want a Prius, though, you may need to get on a waiting list. With $3K off the price, it will really pay to be stylish.)

Edward A. Morse

1 comment:

Charles said...

While I'm not a fan of people getting tax credits through loopholes, it is quite different to spend 25-40 thousand to get a $250-3,000 tax credit.

This is one way the government can encourage people to go with a more environmentally freindly vehicle. It reduces dependency on oil, helps the environment, its more cost efficient to own, and the tax credit is an extra bonus for someone looking to purchase a new car.

I think there should be further credits for people who choose renewable resources like solar and wind for their homes.

The gvnmt should encourage more people to use these resources and tax credits are one way to do so.