Wednesday, November 16, 2005

Bigger Vehicle, Bigger Tax Credit--Does It Make Sense?

The Honda Insight: 57 mpg, but a relatively meager $1,450 tax credit for purchasers

Tax credits are intended to encourage specific kinds of behavior by subsidizing them. The linked article in Wired poses an interesting economic issue, one deeply intertwined with politics. It seems that tax breaks designed to reward purchasers of fuel efficient vehicles fail to correlate exactly with a vehicle's miles per gallon. Thus, consumers who purchase some SUVs will receive larger tax credits than purchasers of hybrids, according to a study done by the American Council for an Energy Efficient Economy.

The amount of each tax credit is computed according to a formula, which takes into account a vehicle's improved fuel economy, measured against competitors in its class. Thus, the 57 mpg Honda Insight hybrid automobile offers a $1,450 tax credit, while buyers of the 36 mpg Ford Escape hybrid SUV receive a $2,600 credit.

The ACEEE's own research shows that the correlation between miles per gallon and the size of the tax credit is in general positive. The logic for a greater credit of the Escape is also well grounded, since the Escape will save more gallons of gas each year for its purchasers than will the Insight. What's the problem?



At 4:04 PM, Blogger Sarah said...

Well, of course they are only doing that so people will buy the Ford! Give them more $ back so they will buy from us, in my opinion go with the Honda!

At 7:54 AM, Blogger ryan said...

I think that Honda probably makes a more reliable vehicle, especially when it comes to fuel economy. Hondas are generally safer as well.

At 9:31 AM, Blogger Julia said...

It's nice to know that you get tax breaks for buying a hybrid. I've been considering getting one eventually.

At 12:36 PM, Blogger Noah said...

Maybe they should not offer tax breaks for the normal cars at all. This would encorage people even more to buy hybrids.

At 2:43 PM, Blogger Jbrew87 said...

Receiving more of a tax break on a SUV vs. a hybrid is outrageous. But I guess the government has never been one to think environmentally.

At 11:08 AM, Blogger HalheG said...

I am glad I do not have to worry about paying taxes.

At 4:23 PM, Blogger Nochman said...

I see no wrong in (a) government's support of indigenous businesses.

At 9:34 PM, Blogger Jamie said...

I think they should give a greater tax break to the car that cost more money and saves more gas. They should create a formula for that.


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