Tax Credits for Hybrids Don’t Significantly Increase Demand

Steve LaFleur

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It seems as if every time you turn on the news, you hear politicians talking about raising taxes on the wealthy. The Oregon legislature already raised taxes on higher-income earners, and the Obama administration wants to do the same. Despite this, both the Obama administration and the Oregon legislature have proposed subsidies for certain higher-income earners. This is being done through tax credits for hybrid electric cars.

The State of Oregon offers up to $1,250 in tax credits for hybrid electric cars, and federal tax credits range from $2,500-$7,500. While lower prices increase the demand for goods, it is not clear that the tax credits for hybrid vehicles have been successful. According to J.D. Power and Associates, hybrid vehicle owners have an average household income of $113,400. The study also finds that consumers who are considering buying a hybrid have an average household income of $88,000.

Economists at the University of British Columbia found that the rebate programs subsidized many consumers who would have bought either hybrid vehicles or other fuel-efficient vehicles anyway. The cost of reducing carbon emissions from these programs is estimated to be $195 per ton. Compare that to the high-end estimates for carbon credits, which is about $20. Fortunately, while these programs have negligible environmental benefits, at least they will make environmentalists feel good.

Steve LaFleur is a research associate at Cascade Policy Institute, Oregon’s free market public policy research organization.

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