Wednesday, October 12, 2005

Fuzzy Math 101

Tax breaks are more than just money back in the pocket of a possible "do-gooder" or White House "Friend of the Family." They're about the message. What message is the federal government sending when it gives more credit and higher standard deductions to heavier SUV models than to hybrid passenger cars? A pretty clear one: you can have your cake and eat it too.

The recently enacted Energy Policy Act does exactly this with the help of some ancient mathematical tomfoolery (Bush perfers to call it "magic") that gives more money to those who purchase certain SUV hybrids than to those who purchase passenger vehicles like the Prius and Honda Insight. Albeit, I get the general idea here: save more gallons of gas from being burned and we save less from hitting the atmosphere. From Wired...

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.

So, where is the green incentive? We're rewarding people more for buying a less efficient vehicle. If I come home with my . I understand the overall economic reasoning (kind of..even that seems like a stretch) but take a step back and look at why the general tax incentive was created and suddenly this seems like a real failure of being too involved in details. Ballentine's quote is the key to this question: "If the goal is saving oil, then it's not nonsensical."

We want to reward people who buy the most fuel efficient vehicles, not those who simply have the most fuel left in their tank at the end of the day. Afterall, if my tank is bigger than yours (which is the case with SUV gas tanks compared to passenger hybrids) I'll probably save more gas over the life of the vehicle than you ever could with your Prius.

Now, throw into the mix the fact that the tax incentive is manufacturer-specific (yikes...the federal gov't penalizing people for not purchasing from "recommended" brands?) and you've got yourself a thoroughly confusing rebate program, one which I don't have one to sit down to figure out and neither do most Americans.

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.

So, not only will the government encourage people to buy less efficient vehicles with a tax incentive program that was designed to reward those who purchase the most efficient vehicles, but it's allowing itself to pick the businesses and corporations for the very people it governs. Can't say I agree with how this falls inline with the classic conservative mantra, "government out of the private sector."

1 comment:

Matthew said...

More posts please, Japhet. I'm finished re-reading this one...