By on September 21, 2012

Washington’s campaign to put you in an EV will cost the taxpayer $7.5 billion through 2019, and it’s all for nothing, says a report by the Congressional Budget Office.

The policies will have “little to no impact” on overall national gasoline consumption the report, cited by Reuters, says.

Those up to $7,500 tax credits will account for only 25 percent of the $7.5 billion bill, says the CBO.

$2.4 billion are grants to battery makers and projects to promote electric vehicles, $3.1 billion are loans to auto companies.

The CBO is putting its finger on an even nastier aspect: The tax credits indirectly, but very efficiently promote the sale of gas guzzlers. Through off-sets, carmakers that sell government-subsidized EVs can now sell more gas hogs.

“The more electric and other high-fuel-economy vehicles that are sold because of the tax credits, the more low-fuel-economy vehicles that automakers can sell and still meet the standards,” says the report.

What little gasoline is saved through EVs comes at a very high price. The U.S. government will spend anywhere from $3 to $7 for each gallon of gasoline saved by consumers driving electric vehicles.

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42 Comments on “Congressional Budget Office: EV Tax Credits Promote Gas Guzzlers...”


  • avatar
    nickoo

    I find this argument to be *incredibly* weak. No doubt CAFE, as it applies to fleets, needs to be looked at, and yes, this will allow some manufacturers the *potential* to sell more SUVs, but I would guess that incentivizing electric vehicles makes little to no difference at this point in what consumers choose to drive.

    In other words, if a consumer was going to buy an SUV, they were going to buy an SUV, regardless of electric vehicle availability. Also, electric vehicles aren’t quite there yet as total gasoline replacement vehicles,–when they do reach that point, then more consumers will choose them over gasoline vehicles, reducing sale of gas guzzlers.

    • 0 avatar
      danio3834

      All other arguments aside, it is outrageous for the Government to use public funds in an attempt to promote one product over another. For a nation that proclaims itself to be free, this concept hardly seems free at all.

      • 0 avatar
        Maxb49

        Oh yeah? Tell William Rhenquist in Rust v. Sullivan 500 U.S. 173, who held that Congress may make a value choice to subsidize certain programs and interests at the expense of other interests (in the case of Rust, abortion services). Face it folks, every spending/subsidy program has economic implications one way or the other. If you don’t like it, vote for someone else, but it isn’t outrageous to our developed Constitutional history and it certainly isn’t going to win in court.

      • 0 avatar
        danio3834

        Case law doesn’t make it right. Poor interpretations from the bench are disputed and overturned all the time.

        Governments displaying product favoratism is mere corporatism which violates some very basic tenets of human trust.

      • 0 avatar
        Lucky Ducky

        Was the government picking favorites when it chose to fund the trans-continental railroad instead of waiting for the free market to come up with its own disjointed solution for long-distance travel across the US?

        It sure was, and we’re all better off because of it. There is no inherit moral hazard in the government picking favorites.

  • avatar
    Robstar

    Not sure about you, but $3 for a gallon of gasoline is super cheap. I haven’t seen under $4 gas in the last 2 months!

  • avatar
    Ubermensch

    “The U.S. government will spend anywhere from $3 to $7 for each gallon of gasoline saved by consumers driving electric vehicles.”

    A bargain considering the cost capital, both in human and treasure of wars.

    • 0 avatar
      Dan

      Vietnam, Grenada, Panama, Somalia, Bosnia, Kosovo, Iraq, Afghanistan, the common thread there seems to be countries that are just swimming in oil.

      Let me know when we invade Venezuela, Mexico or Canada.

      • 0 avatar
        el scotto

        Bosnia and Kosovo were basically humanitarian missions. Genocide is an ugly thing and the Serbs have been pissed since 1344. Afghanistan got rid of the Taliban and a government that believed it was still 1458. Iraq occurred because Bush JR was pissed because Saddam and Bush SR hated each other. Retired, just use my BDU’s for deer hunting.

  • avatar
    Caboose

    As winter’r traditional increase in fuel prices settles in (to be only partially undone each Summer), higher prices at the pump will create a counter-trend. That is, just because the OEMs can manufacture more gas-hogs under due to the distorted incentives, doesn’t meant they will be able to sell them.

    Anecdotally, there is a Chevy/Subaru/Hyundai dealer directly across the street from a Toyota/Scion/GMC dealer here. They have roughly 30-40 full-size GM SUVs each (Tahoe/Yukon/Suburban/Yukon XL/Denali &c.). The neon signs at both say “$10,000 off sticker!!!!” I presume each dealer has more in backstock.

    The broader argument is one of social engineering. Now the thing about social engineering is that most folks who are opposed to it don’t run for office. So we’re stuck with it. That said, the easiest and most effective way to get regular folks out of the vehicles government wishes they wouldn’t drive would be to scrap these deliberately ponderous schemes/subsidies/CAFE/blah blah, and just raise the price of gas.

    Just freeze emissions regs. where they are for a decade, and raise the gas tax by say, a penny a week until it levels off wherever it gets high enough to permanently change folks’ driving habits. That would handily unwind the distorted incentives mentioned in this article. It would also tend to counteract the odd phenomenon by which owners of more fuel-efficient cars drive more miles. Cars might stop getting bigger with each new generation.

    Hell, a higher gas tax is just about as progressive as any left-leaning person could ask for: the richer someone is, the more cars he is likely to have, and the less fuel-efficient they are likely to be, and the more miles he is likely to put on them, so he uses more gas. A rising gas tax would thus hit the rich harder than the poor. And would tend, over time, to convert rich people into merely middle-class people, a stated goal of many.

    The tax would also tend, over time, to self-cancel. As more efficient cars are sold, and are driven less, less tax is collected from that source. But less oil is also purchased from overseas, tending to lessen another poster’s “human cost” for oil. So it balances out.

    A penny a week. Last comment about CAFE: For a bunch of Keynesians, CAFE sure looks like a positively Jack Kemp-esque supply-side solution.

    • 0 avatar
      danio3834

      Ugh. No more taxes. Please stop advocating this.

    • 0 avatar
      Landcrusher

      Yes, a tax would be better than cafe, but it actually the left and right who don’t like it. The right hates any new or raised tax reflexively while the left hates any tax paid by the 99 percent. We are surrounded by free lunchers and looters, dude.

    • 0 avatar
      el scotto

      Any sales tax is a regressive tax; it takes a larger percentage of a poor persons income than a rich one’s. Working people will take notice of the higher prices. $10 to have enough gas to make it to payday will turn into $15, even $20 to make it to payday.
      Senator elect El Scotto will run against the evil man who raised your gas prices. Official campaign vehicles will be an SUV to haul all the swag, an American built hybrid festooned with American flags, and a Miata for myself and the hot young blonde thing straight out of Georgetown Law.

      • 0 avatar
        Landcrusher

        I don’t accept that all sales taxes, and not even the gas tax, is regressive. If we define rich and poor by income, or preferably, take home pay, I think you would be surprised how much high income amilies spend on fuel, and low income families get off book income.

      • 0 avatar
        danio3834

        How is a flat percentage tax regressive to poor people? When someone ANYone purchases an item, they are charged the same amount of tax. How is this not fair?

        Sales taxes are equally regressive to ALL people.

        If a given person has less money than another, they will not be able to buy as many items. Basic math? Want to buy more, work harder earn more?

      • 0 avatar
        Pch101

        “I don’t accept that all sales taxes, and not even the gas tax, is regressive.”

        Why you continually try to rewrite definitions to suit your purposes, I have no idea.

        A regressive tax is a tax for which the effective tax rate decreases as ones income increases. A guy who makes $500,000 per year is unlikely to use ten times as much fuel (and accordingly pay ten times more fuel tax) as does a guy who makes $50,000 per year, therefore the tax is defined as regressive.

        It isn’t a value judgment. The term “regressive” doesn’t imply that it’s good, bad or indifferent, it’s just a reflection of how the tax impacts people relative to their incomes.

      • 0 avatar
        el scotto

        Danio To phrase it another way. A sales tax will take more of poor persons income than a rich ones. Someone making 100k a year will pay less of a percentage of their income for sales tax than someone making 30k a year.

      • 0 avatar
        danio3834

        Yes, of course that is true. The base price of everything else that person purchases would similaly affect their income. Simple math and logic dictates that one who makes less should spend less.

      • 0 avatar
        Pch101

        “The base price of everything else that person purchases would similaly affect their income. Simple math and logic dictates that one who makes less should spend less.”

        You’re really not getting it. Perhaps I need to make up an example.

        Let’s suppose that Paul the Poor Guy makes $25,000 per year. Paul drives an old Beatermobile that gets an average of 25 mpg, and he drives it 12,000 miles per year.

        Then there Andy the Affluent Guy, who makes $125,000 per year. Andy drives a groovy imported SUV that gets 18 mpg, and he drives it 15,000 miles per year.

        Let’s suppose that Paul and Andy both pay a gas tax of 50 cents per gallon:

        -Paul used 480 gallons for the year. He paid $240 in gas taxes.
        -Andy used 833 gallons for the year. He paid about $417 in gas taxes.

        Who paid more taxes? Andy did. He used more gas, and paid about $177 more in tax.

        But who had the higher effective tax rate? Paul did. He spent almost 1% of his income on gas tax ($240/ $25,000), while Andy paid about 0.33% ($417/$125,000).

        Like almost all sales taxes, that tax is a regressive tax because the affluent person pays taxes at a lower RATE. It’s not the dollar amount of tax, but the effective tax RATE.

        The argument against regressive taxes is that they create more of a burden on guys like Paul. Perhaps you can argue that Paul deserves the burden or the burden isn’t that great, so he should suck it up, but there is no denying the fact that Paul is paying taxes at a higher rate than is Andy.

      • 0 avatar
        Landcrusher

        Well, there you go again, PCH.

        We have had this argument, and saying I am always trying to do something when I am not is just rude. In this case, I am trying to change a definition BACK. Only after years of liberal academics, media, and government types has regressive meant what it does today, and it is preloaded with negative connotations which is why they did it. Regressive is unfair and backwards and now likely synonymous with racist. Propaganda?

        I also note that you changed your ridiculous first example post. Nice. So let’s look at what’s really more likely, because my argument is not semantic, it’s about reality. Paul, is either single, or he doesn’t actually pay fuel taxes. Most liberals would think discouraging single Paul from driving is a good thing. Married Paul has a wife and child and gets the EITC which covers his fuel bill including the tax. OTOH, Affluent Andy, his wife and child, pay a 15% income tax, and drive well over 30k a year due to their suburban lifestyle. They pay the fuel tax from Andy’s wages. So, in the end, Paul’s fuel tax is paid for by Andy who also pays the rate for his triple size fuel bill.

        Also, Andy paid for Paul’s share of the cost of CAFE, which doesn’t discourage any driving at all, because the way the manufacturers pass on those costs.

      • 0 avatar
        Pch101

        “We have had this argument”

        No, we’re not having an argument. You’re making assertions that are factually incorrect, and I’m correcting you.

        An “argument” suggests a difference of opinion. But the definition of “regressive tax” is a matter of fact, not a matter of opinion. You’re trying to change the language just to suit your quirks.

        “In this case, I am trying to change a definition BACK.”

        No, you aren’t. It has never been defined as you’re trying to define it, so you’re not moving it “back” to anything.

        You’ve cooked this whole thing up in your head, and now you’re trying to sell it. I’m not buying. The definition is fine as it is, and you bring no value to the table by trying to alter it to suit your personal whims.

      • 0 avatar
        Landcrusher

        Your posts are going from rude to a nifty combo of condescending and belligerent. (always a sign i am winning).
        Try looking up several sources for regressive (and now argument since you have it wrong as well). Heck, take the advanced course and trace the etymology back to the Latin root, regressus. Also, Wiki has an interesting bit about the peculiar use of the word in American politics.
        I can find no source which states that a tax would have to be progressive to avoid being regressive, our last argument. I can also find no source with any meaning which doesn’t have a negative connotation, nice try though.
        Your posts are wrong unless one accepts that those on the left get to change definitions at whim rather than the usual process you guys use which takes at least a week. Unfortunately, this site doesn’t have a liberal moderator to suppress the truth. You are on your own.

      • 0 avatar
        Pch101

        “I can also find no source with any meaning which doesn’t have a negative connotation”

        Then you must lack basic research skills, since this is simply an economic term.

        ____

        Investopedia -

        Definition of ‘Regressive Tax’:

        A tax that takes a larger percentage from low-income people than from high-income people. A regressive tax is generally a tax that is applied uniformly. This means that it hits lower-income individuals harder…Some examples include gas tax and cigarette tax.

        http://www.investopedia.com/terms/r/regressivetax.asp

        ____

        IRS:

        regressive tax: A tax that takes a larger percentage of income from low-income groups than from high-income groups.

        http://apps.irs.gov/app/understandingTaxes/teacher/whys_thm03_les02.jsp

        ____

        Encyclopaedia Britannica -

        regressive tax: tax that imposes a smaller burden (relative to resources) on those who are wealthier; its opposite, a progressive tax, imposes a larger burden on the wealthy. A change to any tax code that renders it less progressive is also referred to as regressive.

        http://www.britannica.com/EBchecked/topic/496192/regressive-tax

        ____

        “a sign i am winning”

        If there is a competition to prove that you don’t know what you’re talking about, then yes, you’ve won. Without a doubt.

      • 0 avatar
        ajla

        @Landcrusher:

        A “regressive tax” is an academic term that dates back to the early 1900s to before the signing of the 16th amendment. Maybe it goes back earlier, but that’s the earliest use I’ve read.

        I disagree with PCH101 that is isn’t supposed to be taken as a value judgement though. The people that originally used those terms argued quite strongly that the a goal of a US income tax system is that it meet the definition for “progressive” taxation. They wanted a “regressive tax” to be seen as a thing to avoid.

        PCH101 is correct that a gas tax, taken on its own, meets the definition of a regressive tax.

        I don’t want to put words in your mouth, but what you seem to be stating is that the differences in the driving habits of people across income levels, combined with the overall progressivity of the US tax system, does enough to offset the regressive effects of a gas tax.

        If that is what you mean, I think it is a much better discussion to have than arguing over definitions.

      • 0 avatar
        Landcrusher

        I see the problem, here. I am talking about the meaning of the word (found in dictionaries) while you are talking about how government and academic people use the word (found in the types of tertiary sources and a shelf decoration, you used This is exactly my point. I am trying to get the honest meaning, not the altered one.

        If you weren’t such a leg, you would get that.

  • avatar
    Robstar

    I think the big issue is that as you raise the gas tax $fixed_amount per $fixed_timeperiod, as the dollar devalues, the tax means (& buys) less & less.

    The other issue with your proposal is that you don’t see many low income people in brand new prius’s. The poor don’t have a car appropriate to each task. If they have a car, it needs to handle EVERY driving need of everyone in the family which typically lends itself to being a larger car or truck.

    On the other hand, the middle/upper class can go out and buy a prius or small subcompact as a commuter & keep a second rarely used truck/larger car for when it’s needed.

  • avatar
    paddle2thesea

    All for nothing? Even if CAFE offsets for EVs don’t move the ball emissions-wise, don’t they encourage the development of EV technology much like the tax credits and grants? Seems like the CAFE offsets might operate as a revenue-neutral way to push technology by car manufacturers.

  • avatar
    BrianL

    This is a very weak argument. People are going to buy what people are going to buy. CAFE is a poor choice for regulating MPG and the vehicles that are purchased. In fact, I am guessing that there are ethanol subsidies still in it. So, selling vehicles that can run on ethanol support SUVs too.

    This argument holds about as much water as the greenest cars sales weighted data that shows Hyundai leading truck MPG when ALL trucks are put in there and Hyundai doesn’t sell anything but crossovers.

  • avatar
    Junebug

    Oh yes, the pitiful pitiful poor. Just where are these “poor”? I live in a “poor” rural county in NC and every welfare mamma out there has a car/suv/minivan to take her 3-5 kids with different daddies to school in. Before anyine gets on their high horse, let me say right now, my wife has taught school for going on 30 years, and if anyone of you experts out there think I’m making this up – you’re just fooling yourself. Go get some more share the wealth koolaid and STFU.

    • 0 avatar
      el scotto

      Junebug I grew up in a poor rural county in Indiana, We were considered “rich” because my dad was an engineer for the government. I imagine there’s no public transportation in your county, like mine. Those welfare mommas have to have a ride. The only way to get to the grocery, wally world, or their shitty job is to have a car.
      The ragout of low income, poor credit scores, paying to have their ride constantly fixed, and general bad decisions keep them in a cycle of poverty. This ends up with their ride eating up much more of their income than it should.
      A friend of mine’s wife told me one time: I work a day to pay taxes, a day to pay for daycare, a half a day to pay for lunches and gas. I’d druther just have Matt work overtime and stay home with the kids.

  • avatar
    CJinSD

    Free markets would address all of these issues, real and imagined, without the need for real or imagined resource-driven wars, for corrupt politicians, for a brainwashed populace. International oil supply unstable? Domestic resources become more valuable and better utilized. Mass transit costs require perpetual subsidies? Then no more resources will be wasted, be they real estate, right of way, energy, non-productive labor, materials, etc… One energy source becomes too scarce? Then the market motivates new or improved alternatives. You don’t have to bribe people to enrich themselves, only to act irrationally. Stupid is as stupid does.

    • 0 avatar
      danio3834

      This right here. In a comment thread full of “tax this” and “subsidze” that, here we have a thought process that finally makes sense.

    • 0 avatar
      Astigmatism

      You’re right, I guess we /should/ stop funding those darn cash-hog roads.

      BTW, it’s nice to know that there are no externalities in your reality.

      • 0 avatar
        moedaman

        “You’re right, I guess we /should/ stop funding those darn cash-hog roads.

        BTW, it’s nice to know that there are no externalities in your reality.”

        I’m not a supporter of big government, but I do know that there are things that only governments can do efficiently, such as infrastructure or defense.

        The main reason why I hate big government is that governments never use a scalpel to fix a problem, they use chainsaws. Then the mistakes of using a chainsaw try to get corrected with new rules/laws and once again a different chainsaw is used. It’s never ending.

        At least placing restrictions on government action makes them use a Bowie Knife instead of a chainsaw. This is why our constitution and Bill Of Rights were created to say what the federal government can’t do and not what it can do. Sadly, big government will never use a scalpel. And, like all big organizations (such as unions or corporations), will never do anything with precision (unless it benefits the people at the top).

    • 0 avatar
      01 ZX3

      I like the way you think.

  • avatar
    Dan

    Addressing gallons in terms of miles didn’t work 35 years ago and it doesn’t work today. Conservation by the mile is like dieting by the size and number of forks per place setting at a buffet.

    That’s ok, though. Some day our federal brontosaurus will notice that it did in fact step on a thorn. And it will blink, bellow, and indiscriminately trample a different piece of the market instead.

  • avatar
    Landcrusher

    Ajla,
    It goes back to late 19th century, and you are close to my point.

    Where is the data that fuel taxes are regressive? Why would you count those on a dole as victims of its regression? Where is the evidence CAFE saves fuel, and aren’t sales taxes on new cars incentivizing buyers not to upgrade or buy a second car for one passenger trips?

    And yes, shouldn’t the progressivity (word?) of income and property taxes be enough? Finally, knee jerk reactions to any consumption tax, no matter how fair, is just as bad as Norquist.

  • avatar
    blowfish

    not sure how the tax system work in south of 49th parallel, being north of 49th //. the lower income folks usually are not self employed, therefore they dont enjoy as much of a tax write off as the self employed folks.
    by and large banks are not usually crazy to lend u money to start your own company / biz as to becoming self employed.
    being SE u get to write off your dog’s feed, gas for your guzzler,
    meals receipt for family could advertently endup in business entertainment, this list can go on & on.
    Wage earners usually have source deduction, where your taxes, employment insurance & canada pension were deducted from the company u work for and submitted on your behalf.
    SE u do tax return yearly in end of april by your trusted & creative accountant, he’ll reshuffle all your receipts, should your co. makes a ton of mulla he may suggest u to incorporate so u leave some money in the inc and pay income tax at a lower rate.
    only take enuf money as needed, the rest re-invest in the highest yielding T bills, bonds etc.
    the bottom line is the more money u have the less it costs u to live. Regressive perhaps an understatement.
    in canada the interest we pay for home mortgage loans are not income tax deducted, then when u sell the principal home there is no tax.
    in USA your home mort interests is tax deductable as I was told. correct me if wong.


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