Advanced Technology Vehicle Tax Credit
The advanced technology vehicle tax credit passed into law as part of the 2005 comprehensive energy bill that went into effect on January 1, 2006. This tax credit applies mainly to hybrid vehicles (you can find a list of the UCS projected hybrid vehicle credits here). Vehicles that get better fuel economy get a larger tax credit, and only vehicles meeting Tier 2, Bin 5 smog-forming emission standards or better qualify for any credit at all.
These credits are an excellent consumer stimulus for putting better cars, pickups, and SUVs on the road and pushing forward the advanced vehicle market. One glaring flaw, however, was the insertion of a "manufacturer's cap." After a manufacturer has sold 60,000 credit-qualifying vehicles, the benefit is immediately reduced, and shortly after eliminated entirely. This "cap" will penalize consumers who want to buy this technology from the leaders in the field—the manufacturers who have been driving the market for hybrids. Toyota will probably hit the 60,000 cap in six months or less, Honda in a year and a half. While the manufacturers who've been less active in developing hybrid technology, such as GM and DaimlerChrysler, may never be limited by the cap at all.
Once a manufacturer hits the 60,000 vehicle cap, consumers will have 3-5 months to continue earning the full credit, then the phase-out will begin. For the following six months consumers will get only 50 percent of the credit and six months after that they will only get 25 percent.
To have the greatest possible effect on the advanced technology vehicle market, tax credits must allow consumers to make choices about what qualifying vehicles they want to buy. Increasing incentives, such as Congressman Rahm Emanuel's (D-IL) domestic hybrid tax credit expansion bill, may have some merit in helping to push American automakers forward. But capping the tax credit based merely on the sales success of the manufacturer runs contrary to the spirit of the program.
