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Hybrid Tax Credits Promote Inefficiency

QuickPoint!

Companies buying hybrid gas-electric cars might be saving more on their taxes than on fuel. The State of Oregon now offers businesses tax credits worth thousands of dollars when they purchase hybrid vehicles. The underlying rationale has been to promote fuel-efficiency, yet cars with higher gas mileages are not rewarded with a larger tax credit. Instead, the size of the credit is based on the price difference between the hybrid and a similar gas model. This means that the tax credit is twice as large for a business purchasing a Lexus LX 400h, than for a business purchasing a Honda Insight, even though the Insight’s gas mileage is twice that of the Lexus. This is the trend in Oregon’s hybrid incentive program; as efficiency increases, the relative tax credit decreases.

Furthermore, several hybrids are not much more efficient than their gas counterparts. As the July 17 Oregonian reported, in recent years, car manufacturers have been designing hybrids to perform better, not consume less fuel. For instance, Honda’s hybrid Accord only gets 3 more miles per gallon than a standard Accord.

Instead of helping the environment, tax credits just serve to subsidize manufacturers of more expensive, less economical luxury hybrids. If Oregon is going to subsidize hybrids at all, the incentives should favor more efficient vehicles.

Bruce Smith is a research associate at Cascade Policy Institute, a Portland, Oregon based think tank.

© 2006, Cascade Policy Institute. All rights reserved. Permission to reprint in whole or in part is hereby granted, provided the author and Cascade Policy Institute are cited. Contact Cascade at (503) 242-0900 to arrange print or broadcast interviews on this topic. For more topics visit the QuickPoint! archive.

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