Wacky government incentives
In moving to Massachusetts, the Drezner family needs to buy a second car, and we’re thinking about a Prius (like Virginia Postrel, I like the styling as well as the gas mileage). This caused us to stumble onto one of the odder tax credit schemes I’ve seen, the 2005 Energy Policy Act’s credit for qualified ...
In moving to Massachusetts, the Drezner family needs to buy a second car, and we're thinking about a Prius (like Virginia Postrel, I like the styling as well as the gas mileage). This caused us to stumble onto one of the odder tax credit schemes I've seen, the 2005 Energy Policy Act's credit for qualified hyrbid vehicles. The credit is based in part on the fuel-efficiency of the hybrid vehicle, which makes sense... sort of (why someone should get a tax credit of over $1,500 for a Lexus GS 450h when its gas mileage is below a lot of non-hybrid cars on this list is beyond me). What makes no sense to me at all is the tax credit's half-life. Here's the IRS's explanation: Consumers seeking the credit may want to buy early because the full credit is only available for a limited time. Taxpayers may claim the full amount of the allowable credit up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th vehicle. For the second and third calendar quarters after the quarter in which the 60,000th vehicle is sold, taxpayers may claim 50 percent of the credit. For the fourth and fifth calendar quarters, taxpayers may claim 25 percent of the credit. No credit is allowed after the fifth quarter. Unless it was designed to reduce the fiscal impact of the tax credit, this makes no sense to me. All it does is give people an incentive to buy cars in the first half of the year. If anything, the incentive penalizes brands and models that perform well -- since they would hit their cap quicker than less appealing brands. Knowledgable readers are implored to comment on any rational reason for puting a quantity cap on the tax credit. It should be stressed, however, that this is not the most bizarre government incentive scheme in recent years. No, you're going to have to click here to read about the government incentive scheme that generated the most bizarre, disturbing -- and yet thoroughly predictable -- response.
In moving to Massachusetts, the Drezner family needs to buy a second car, and we’re thinking about a Prius (like Virginia Postrel, I like the styling as well as the gas mileage). This caused us to stumble onto one of the odder tax credit schemes I’ve seen, the 2005 Energy Policy Act’s credit for qualified hyrbid vehicles. The credit is based in part on the fuel-efficiency of the hybrid vehicle, which makes sense… sort of (why someone should get a tax credit of over $1,500 for a Lexus GS 450h when its gas mileage is below a lot of non-hybrid cars on this list is beyond me). What makes no sense to me at all is the tax credit’s half-life. Here’s the IRS’s explanation:
Consumers seeking the credit may want to buy early because the full credit is only available for a limited time. Taxpayers may claim the full amount of the allowable credit up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th vehicle. For the second and third calendar quarters after the quarter in which the 60,000th vehicle is sold, taxpayers may claim 50 percent of the credit. For the fourth and fifth calendar quarters, taxpayers may claim 25 percent of the credit. No credit is allowed after the fifth quarter.
Unless it was designed to reduce the fiscal impact of the tax credit, this makes no sense to me. All it does is give people an incentive to buy cars in the first half of the year. If anything, the incentive penalizes brands and models that perform well — since they would hit their cap quicker than less appealing brands. Knowledgable readers are implored to comment on any rational reason for puting a quantity cap on the tax credit. It should be stressed, however, that this is not the most bizarre government incentive scheme in recent years. No, you’re going to have to click here to read about the government incentive scheme that generated the most bizarre, disturbing — and yet thoroughly predictable — response.
Daniel W. Drezner is a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and co-host of the Space the Nation podcast. Twitter: @dandrezner
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