Ending Hybrid Welfare

John A. Charles, Jr.QuickPoint!

Federal tax credits for hybrid-electric vehicles manufactured by Toyota will be cut in half this weekend, because Toyota has reached the ceiling of 60,000 subsidized vehicles that Congress established in 2005. The tax credit for the popular Prius will drop from $3,150 to $1,575, and in April 2007 the credit will be halved again to $787. After October of next year, no federal tax credits will be available for the Prius, though they will likely still be available for other brands such as Ford or Chevrolet.

This is a welcome phase-out of wasteful subsidy. The only justification for any tax break is to encourage socially useful behavior that would otherwise not occur. But there is nothing socially useful about buying a Prius; it’s simply a status symbol for liberals looking to make a political statement about how green they are. To the extent that it requires less gasoline than the average car, the savings accrue to the owner, not society.

Toyota does not intend to create any other incentive, because it doesn’t need to. As a Toyota spokesman told the Wall Street Journal, “The Prius has never needed incentives, because it’s been a tremendous seller.”

That’s exactly the point.

John A. Charles, Jr. is president and CEO 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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