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Electric Car Market Gets Useful Jump-Start, Tax Breaks

Posted on December 25, 2010
Filed Under Tax Information | Leave a Comment

When Toyota unveiled its gasoline-electric Prius hybrid in Japan in 1997, car executives here scoffed that the car was little more than an expensive novelty. When Honda began selling the first hybrid in the U.S. market in 1999, the two-seat Insight was derided as cramped and impractical.

OPPOSING VIEW: Subsidies? Just say no

Eleven years later, more than 2 million Priuses have been sold worldwide, and there are about 1.5 million hybrids on the roads here, including models from the U.S. automakers. That’s still a tiny fraction of the 250 million vehicles in America, but they have helped cut gasoline use.

Now comes Round 2, as General Motors and Nissan begin delivering their first new electric cars to buyers amid some of the same sort of skepticism that dogged the early hybrids. Americans should hope the skeptics are wrong again.

The two new cars, due to be followed by models from other automakers, are promising fuel savers. The Chevy Volt can go 25 miles to 50 miles on battery power alone; after that a gasoline engine kicks in to power a generator for a total range of about 350 miles before fill-up or recharge. The more limited battery-only Nissan Leaf can travel an estimated 62 miles to 138 miles before it needs a recharge.

It’s easy to deride the new electric cars, just as it was the early hybrids. The batteries take hours to recharge, and when the Leaf is out of juice, it had better be at a plug. It presumably would be useful only to short-range commuters with no other need for the car. Both cars are small, though the Volt is no smaller than many sedans, and automotive writers say it’s as quick and responsive as a gas-powered car.

The biggest drawback, and the one critics have made much of, is the cost, and not just to buyers. The Volt lists for $41,000 and the Leaf for $33,000, so the federal government, eager to jump-start a market for electric cars, is helping with the sticker shock by shelling out up to $7,500 per car in tax credits for the first 200,000 cars an automaker sells.

There’s a downside to this. The tax code would be far better if it weren’t riddled with tax breaks such as this one. In addition, the tax credit spends money the government doesn’t have.

But those are bigger, more important issues in which the credit is a bit player. The benefit comes if electric-car technology gets cheap enough to stand on its own, providing a way to trim U.S. dependency on foreign oil, now two-thirds of our use, some of it from countries hostile to us. There’s plenty of skepticism, but the automakers are optimistic enough to invest in the technology, betting that rising oil prices will boost sales, as they did with hybrids.

One of the best arguments for tax breaks is that they helped get the hybrid market where it is today, along with gas prices and the fact that some states allowed hybrid drivers access to HOV lanes.

Those hybrid tax breaks have been phasing out as the law required — just as the tax breaks for electric cars are required to do. Electric cars must eventually live or die without government help.

As the writer of the opposing view argues, there are compelling arguments against the new cars — but there are equally compelling arguments against every other alternative to the status quo as well. Nuclear is too dangerous, coal too dirty, solar and wind too unreliable, offshore oil drilling too risky and so on.

But the most compelling argument is that the status quo — more and more foreign oil — is unsustainable. Electric cars might not be the answer, but they are an answer, and that makes them worth a try.

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