Drop tax credits on personal vehicles

Tax credits for advanced vehicles seem to be a staple of U.S. energy policy. Established by last year's energy bill, the credits mainly promote hybrid- and diesel-powered personal vehicles, but they also cover advanced commercial vehicles.

Eligibility is capped at 60,000 vehicles annually per company. High gasoline prices are keeping politicians under pressure to address the energy situation, and the president and some lawmakers are proposing more expansive credits.

Whether by lifting the cap or adding coverage for even more advanced (and more expensive) options such as plug-in hybrids, politicians have latched onto technology tax credits as a tool of choice for reducing the security and environmental risks of oil use.

Hybrid drive is indeed a wonderful technology. However, market realities suggest that technology tax credits make little sense for cars and light trucks. They do make sense for advanced, fuel-efficient commercial vehicles, such as delivery vans or other heavy trucks.

Understanding why requires a look at differences between the commercial and personal vehicle markets, as well as a wariness of having politicians second-guess the market on car design.

Freight trucks are part of running a business and cost is paramount, trumping the style or image in the choice of a vehicle. That's why a brand-new delivery van is a no-frills affair compared with the latest SUVs or crossovers, which often have more horsepower even though they rarely haul more than a few hundred pounds of people, pets and groceries.

High tech/high cost

For a commercial enterprise, a new technology can be attractive because it cuts fuel costs, but its newness may make it too costly to pay for itself with standard depreciation. That is where tax credits can help.

There is little risk that a business owner taking the credit is going to buy a fancier vehicle than he needs to get the job done.

Public benefits from reduced oil use are assured when we use tax dollars to encourage ultra-efficient commercial trucks.

For personal vehicles, it's a different story. Cost matters, of course, but not in any "cost management" sense of the word. Style, image, performance and other forms of automotive fantasy make the market go round. Some segments are sensitive to fuel costs but, even so, consumers regularly trade efficiency for other features.

Higher fuel prices are spurring hybrid and diesel sales and also are encouraging a shift to smaller, less-powerful conventional vehicles.

Politicians don't have to wade in and tell consumers that certain ways to save fuel are better than others. What's the point in a tax break for, say, a Lexus hybrid, when many higher miles-per-gallon nonhybrids go unsubsidized? The public won't see any net fuel savings.

The policy debate too often ignores those fundamentals.

Do politicians know more than consumers about what consumers' most-efficient-vehicle choices will be?

Some seem to think that putting a special name and tax category on a certain technology matters more than what a vehicle's fuel economy actually turns out to be.

Fuel economy matters

A half-dozen years ago, before hybrid cars were well on their way to success, tax credits might have made sense. But that time has come and gone.

For the emotionally mediated personal vehicle market, what is really needed from Washington is straightforward leadership in educating the public that fuel economy matters for reasons beyond today's pump price.

Today's gasoline prices have everyone's attention and are causing hardship for many Americans, but a real solution will come only from a sustained shift in vehicle purchase priorities.

Starting a generation ago, the "Keep America Beautiful" campaign cultivated a national ethic that litter is bad.

Today, we need a lasting campaign to highlight the environmental and energy security benefits of higher fuel economy.

Encouraging consumers simply to choose the most efficient vehicle of any type that meets their needs and fits their budget would address the true barrier to progress in that arena, which is not lack of technology but insufficient market appreciation of fuel economy.

A more limited pool of subsidies then can be targeted for advanced commercial vehicles, where incentives do make sense and can deliver net benefits.