mcs328
10-11-2005, 06:48 PM
http://www.wired.com/news/autotech/0,2554,69099,00.html?tw=wn_tophead_4
Big Car, Big Tax Credit
Page 1 of 1
By John Gartner | Also by this reporter
02:00 AM Oct. 11, 2005 PT
Call it environmentalism, Bush style. A new federal tax credit will help allay the extra cost of purchasing hybrid vehicles, but the Byzantine formula for calculating the savings provides greater financial incentives for buying heavy SUVs than more fuel-efficient cars.
The recently enacted Energy Policy Act (.pdf) of 2005 changes the tax credit for purchasing a hybrid vehicle from a standard deduction to a specific amount per model. But the law, which takes effect in 2006, uses a formula that considers both relative fuel economy and the total amount of fuel saved -- a system that favors large vehicles.
* See also
Although the IRS has not finalized the exact amount of incentives for each vehicle, the nonprofit group the American Council for an Energy Efficient Economy, or ACEEE, developed a table that estimates the likely tax credits for each vehicle model based on the formulas describe in the legislation. The table shows that on average SUVs receive a higher tax incentive than the most fuel-efficient cars on the market.
People who buy the 33-mpg Toyota Highlander Hybrid, for example, get a $2,600 write-off -- nearly twice the $1,450 tax credit for the 57-mpg Honda Insight. On average, the four most fuel-efficient hybrids, averaging 53.5 mpg, receive a smaller incentive ($2,100) than the five SUVs ($2,310) that get 32.8 mpg.
The odd math is an artifact of a two-tiered tax credit that's based in part on how fuel efficient the car is compared to the average consumption of vehicles of similar weight, according to Jim Kliesch, a vehicle analyst with ACEEE. For this reason, the Honda Insight receives less credit than the similar performing but heavier Toyota Prius.
The fuel savings component is based on the total fuel saved during the expected lifetime of a vehicle, which enables slight improvements to gas-guzzling vehicles to equal that of big improvements in fuel-efficient vehicles. For example, increasing the gas mileage of an SUV from 14 to 16 miles per gallon saves the same amount of gasoline (134 gallons) in a year as boosting the fuel efficiency of a passenger car from 35 to 51 miles per gallon, according to Kliesch.
"It's difficult to ... say that we are giving significant incentives to models that have mediocre fuel economy, while others that have impressive fuel economy receive less," Kliesch said.
Roger Ballentine, the president of consulting firm Green Strategies said providing incentives to improve the vehicles that use the most gasoline is justifiable. "If the goal is saving oil, then it's not nonsensical," he said.
The amount of the tax credit also depends on when you buy, and from which company, further complicating consumers' purchasing decisions. The tax credit is cut in half for each manufacturer three months after the company sells a total of 60,000 hybrids.
For example, if Toyota sells 60,000 Highlander and Prius hybrids by March of 2006, then in July the tax credit is cut in half, and goes down to 25 percent in January of 2007 before ending in June.
Capping the tax credit based on volume is biased against Japanese companies Toyota and Honda that were first-to-market, according to ACEEE's Kliesch. "This formula penalizes the companies that have been pursuing (hybrids) most aggressively and allows the laggards (such as Ford and General Motors) to take advantage of it for longer time," he said.
Green Strategies' Ballentine said that while it is unusual for a tax credit to be manufacturer-specific, "It is not unusual for companies to lobby for legislation that limits the benefits to their competitors."
"Having a number limit creates an artificial barrier that helps out those manufacturers that have not yet entered the hybrid race," said Honda spokesman Juan Avila. "It may not reduce the incentive to produce hybrid vehicles directly, but it certainly does not impose a level playing field," he said.
Toyota spokeswoman Nancy Hubbell said she does not believe the tax credit limit is unfair, but said the company may have trouble meeting demand if consumers rush to buy hybrids early in the year to make sure they receive the full credit. She said the company will likely sell 60,000 hybrids within the first six months of 2006, and Toyota has less than one day of supply of Prius vehicles on hand. "It will be a challenge in terms of inventory," she said.
Big Car, Big Tax Credit
Page 1 of 1
By John Gartner | Also by this reporter
02:00 AM Oct. 11, 2005 PT
Call it environmentalism, Bush style. A new federal tax credit will help allay the extra cost of purchasing hybrid vehicles, but the Byzantine formula for calculating the savings provides greater financial incentives for buying heavy SUVs than more fuel-efficient cars.
The recently enacted Energy Policy Act (.pdf) of 2005 changes the tax credit for purchasing a hybrid vehicle from a standard deduction to a specific amount per model. But the law, which takes effect in 2006, uses a formula that considers both relative fuel economy and the total amount of fuel saved -- a system that favors large vehicles.
* See also
Although the IRS has not finalized the exact amount of incentives for each vehicle, the nonprofit group the American Council for an Energy Efficient Economy, or ACEEE, developed a table that estimates the likely tax credits for each vehicle model based on the formulas describe in the legislation. The table shows that on average SUVs receive a higher tax incentive than the most fuel-efficient cars on the market.
People who buy the 33-mpg Toyota Highlander Hybrid, for example, get a $2,600 write-off -- nearly twice the $1,450 tax credit for the 57-mpg Honda Insight. On average, the four most fuel-efficient hybrids, averaging 53.5 mpg, receive a smaller incentive ($2,100) than the five SUVs ($2,310) that get 32.8 mpg.
The odd math is an artifact of a two-tiered tax credit that's based in part on how fuel efficient the car is compared to the average consumption of vehicles of similar weight, according to Jim Kliesch, a vehicle analyst with ACEEE. For this reason, the Honda Insight receives less credit than the similar performing but heavier Toyota Prius.
The fuel savings component is based on the total fuel saved during the expected lifetime of a vehicle, which enables slight improvements to gas-guzzling vehicles to equal that of big improvements in fuel-efficient vehicles. For example, increasing the gas mileage of an SUV from 14 to 16 miles per gallon saves the same amount of gasoline (134 gallons) in a year as boosting the fuel efficiency of a passenger car from 35 to 51 miles per gallon, according to Kliesch.
"It's difficult to ... say that we are giving significant incentives to models that have mediocre fuel economy, while others that have impressive fuel economy receive less," Kliesch said.
Roger Ballentine, the president of consulting firm Green Strategies said providing incentives to improve the vehicles that use the most gasoline is justifiable. "If the goal is saving oil, then it's not nonsensical," he said.
The amount of the tax credit also depends on when you buy, and from which company, further complicating consumers' purchasing decisions. The tax credit is cut in half for each manufacturer three months after the company sells a total of 60,000 hybrids.
For example, if Toyota sells 60,000 Highlander and Prius hybrids by March of 2006, then in July the tax credit is cut in half, and goes down to 25 percent in January of 2007 before ending in June.
Capping the tax credit based on volume is biased against Japanese companies Toyota and Honda that were first-to-market, according to ACEEE's Kliesch. "This formula penalizes the companies that have been pursuing (hybrids) most aggressively and allows the laggards (such as Ford and General Motors) to take advantage of it for longer time," he said.
Green Strategies' Ballentine said that while it is unusual for a tax credit to be manufacturer-specific, "It is not unusual for companies to lobby for legislation that limits the benefits to their competitors."
"Having a number limit creates an artificial barrier that helps out those manufacturers that have not yet entered the hybrid race," said Honda spokesman Juan Avila. "It may not reduce the incentive to produce hybrid vehicles directly, but it certainly does not impose a level playing field," he said.
Toyota spokeswoman Nancy Hubbell said she does not believe the tax credit limit is unfair, but said the company may have trouble meeting demand if consumers rush to buy hybrids early in the year to make sure they receive the full credit. She said the company will likely sell 60,000 hybrids within the first six months of 2006, and Toyota has less than one day of supply of Prius vehicles on hand. "It will be a challenge in terms of inventory," she said.