New Energy Act changes tax credits for purchasing hybrids

By Kristen Sackley

While many people buy hybrid vehicles to save the environment, others are purchasing hybrids for more economical reasons. Hybrid electric vehicles have been a part of mainstream society for multiple years, but since the government passed the Energy Act of 2005, things have been changing for hybrid car owners.

Philip Krein, professor of electrical and computer engineering who has worked with hybrid vehicles, said there is a big difference between the tax credit that comes with the new Energy Act and the previous tax deduction that buyers used to receive.

Krein said a hybrid tax deduction allowed the owner to reduce a certain amount of their income to be taxed.

Now consumers get a tax credit, meaning that money comes off of their taxes completely, not just off their income when figuring the taxes.

According to the U.S. Department of Energy, the other main aspect of the act regarding hybrids is the phasing out of these tax credits.

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Once a manufacturer sells 60,000 hybrid vehicles, the tax credits for customers who buy from that company begin to be phased out over a period of time.

Although this might seem like a negative aspect to the act, George Gross, professor of electrical and computer engineering who works with the economics involved with engineering issues, said this may not be the case.

“This incentive has worked very well because it’s still very difficult to get a (Toyota) Prius in different markets. People are on waiting lists,” he said. “It doesn’t seem to necessarily impact the demand for these vehicles.”

But hybrid owners may feel differently, especially since Toyota, one of the major manufacturers of hybrids, has already reached the 60,000 vehicle limit and will end their tax credits in October 2007 because of the phase out.

“I think it’s being phased out too soon,” said Jason Coyne, a Toyota Camry hybrid owner from Iowa and administrator of a hybrid blog.

“I think (the act) would have made more sense based on the total number of hybrids sold, regardless of manufacturer,” Coyne said. “Per manufacturer doesn’t really make a lot of sense to me … It punishes the company’s that got into the technology early.”

Gross said he may agree that there are some problems with the system of tax credits because the act sets the limit too low.

He also pointed out that the government does not want to “put all their eggs in one basket either” and referenced about the funds appropriated for research in hydrogen fuel cell research.

“I think because of the sensitivity of the current congress … we are going to have additional measures which will encourage the adoption of green cars,” Gross said.

Patrick Chapman, professor of electrical and computer engineering, agreed and said the phasing out could have more intentions than just a bonus to the public.

“My guess is it’s an incentive for the American car companies to catch up the market,” Chapman said. “That might have been the real aim.”

Chapman also said the phase out might be necessary because the market has reached it’s highest potential.

“There has been a lot of talk about the hybrid market saturating,” he said.

As of now, the generous tax credits, which can go as high as $3,500 depending on the make, model and year of the car, may be phasing out for manufacturers. But Coyne doesn’t see this as the end of the issue.

“I think that (the government) will probably bring something back, and as you get closer to the election cycle it will come up again,” Coyne said. “With the war continuing, oil and things like that are going to be big political aspects.”

However Coyne said that hopefully as the world becomes more aware of the benefits of eco-friendly cars, this won’t be as much of an issue.

“I think as hybrids become more mainstream, people are be going to making the decision just as any other car and price will become more of an issue,” said Coyne.