Could Electric-Car Tax Credits Become the Next “Cash for Clunkers”?

The White House’s commitment to electrified cars, fulfilling an Obama campaign promise to put 1 million plug-in hybrids into service by 2015, is bound to have serious ramifications for the nation’s already-crumbling system of paying for transportation.

20090731_cash_for_clunkers_33.jpg(Photo: MPR)

But
could the administration continue to leave the gas tax untouched while
relying on taxpayer-subsidized rebates to gin up new car sales? That
prospect is a very real one, as two new posts from the Atlantic and the New Republic observe.

The
first post focuses on the government’s plug-in hybrid tax credit, which
was expanded by the economic stimulus law to offer up to $7,500 per
vehicle for the first 200,000 models sold by every automaker.

The
Atlantic incorrectly states that the stimulus allocated $2 billion to
the credit — that number is the estimated cost of the provision, which
has no dollar limit — but the risk remains the same: If GM sells
200,000 of its Chevy Volts, the credit would take $1.5 billion in revenue from government coffers.

If similar successes for the Nissan Leaf
and the upcoming plug-in Toyota Prius follow, it’s easy to see the cost
of the tax credit topping $4 billion. And as "cash for clunkers" showed,
members of Congress are loath to limit popular pro-industry programs
during an economic slowdown for fear of "messing with success" —
regardless of the estimated costs of the benefits in question.

That could lead to an extension of the plug-in hybrid credit to continue stimulating sales, at a continued cost to the already-depleted Treasury. Meanwhile, the less popular option of increasing the gas tax would immediately pay for itself (as my colleague Ryan put it earlier).

The New Republic’s post looks at a still-unpassed proposal for "feebates,"
a combination of taxes on gas-chuggers and rebates for buyers who
choose cars that exceed fuel-efficiency standards. Again, feebates
follow the "cash for clunkers" template by using taxpayer money — the
fees are not guaranteed to offset the rebates and likely wouldn’t if
drivers flock to efficient models — to encourage greener car-buying
behavior.

But even if an "independent mileage benchmark" were used to ensure that the feebates pay for themselves, as the author suggests,
the more prudent course of action would be simply to keep raising
fuel-efficiency (CAFE) standards. Given that a proposal for a 40 miles
per gallon standard fell three votes short of becoming law 20 years ago, the current 35.5-mpg plan appears ripe for an upgrade.

The
issue comes down to political courage: Offering rebates and tax credits
doesn’t require much of it, but raising the gas tax and CAFE standards
takes quite a lot.

  • While there is never not some compromise offered by even the best and/or best-intentioned U.S. presidents, there are deep behind the scenes those whose names we will most likely never know who nevertheless have been and will continue to be hard at work——incognito, behind the scenes and with remarkable influence.

    Here (http://www.motherjones.com/politics/2009/07/i-love-mark-uniform) is a frightening example of the parallel of the way cars are sold. Read carefully; if the U.S. military will allow this to be done to raw recruits, and allow it to be done at such a level as to invite a threat to national security, what might one infer regarding the “cash for clunkers’ programme that is aimed at mere non-military, working- and middle-class denizens?

  • David Galvan

    There is no question that raising the gas tax is the right thing to do. There is also no question that getting more fuel-efficient cars on the road is the right thing to do. And of course, everyone knows the rub: raising the gas tax is politically very unpopular, and since congressmen depend on popularity for their livelihood, they are more likely to gain traction with their constituents if they oppose a tax hike than if they support it.

    I look at this in a similar way that I looked at Measure R. Yes, a sales tax is technically regressive, and it would be better if the transit money were made available by raising the gas tax or other means. But that was simply not going to happen, and we needed the improvements that Measure R would bring. I had very pro-transit, pro-environment friends who opposed Measure R because they thought the sales tax was unfair to the poor. It flabergasted me how they could be so naive as to think that

    In the same vein, the free market is not going to solve the problem of auto fuel efficiency on its own, given the current cheapness of gasoline in this country. Government needs to take some sort of action to subsidize these more efficient cars to make it worthwhile for individuals to purchase them, especially while these new cars are still showing the expense of a newly-produced car that has not been around long enough to be sold cheaply. The best, right thing to do is to raise the gas tax, no question. But I predict that simply will not happen in the near term, and the democrats in congress and the white house are trying to get as much done as possible before the political pendulum shifts back to the right and they lose their majorities and their ability to move their policies through the process quickly.

    Hence, paying 1.5 Billion as a down payment in getting a critical mass of electric cars on the road is, in my opinion, worth it. Just like $8B for high speed rail is worth it. People will continue to quibble about the sources of this money, but I’m glad this country is willing to start DOING things, instead of just arguing about how to do things.

    If you want to know what people in this country really care about, follow the money. Everything else is just air moving.

  • David Galvan

    (whoops, the end of my sentence in the 2nd paragraph got accidentally deleted before I submitted, here it is:)

    It flabergasted me how they could be so naive as to think that they should keep holding out for a gas tax increase or income tax increase or something else to fund Measure R. They would have been waiting for a very long time.

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This just in from the Streetsblog Network: Greater Greater Washington takes Maryland Senator Barbara Mikulski to task for supporting car sales tax breaks — and asks how that money could be better spent: Sen. Barbara Mikulski (D-MD) touts tax breaks for car buyers at the 2009 Motor Trend International Auto Show in Baltimore. Photo by […]