Hybrid Tax Credit Advances

Friday, June 18, 2004

Congress considers bill to encourage sales of high-tech vehicles

By Jeff Plungis / Detroit News Washington Bureau

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Honda Civic hybrid

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WASHINGTON — With consumers fretting over higher gas prices, automakers welcomed a House vote Thursday that may lead to generous tax credits for gas-electric cars and other environmentally friendly vehicles.

Automakers have been pushing for the tax credits for years, saying they will entice consumers to buy vehicles equipped with expensive gas-saving technology, which typically adds thousands of dollars to a car or truck’s sticker price.

The proposal passed the Senate in May as part of a wide-ranging package of corporate tax breaks.

The House passed a similar bill Thursday on a 251-178 vote. Even though the House left the auto tax breaks out of its version of the bill, automakers and other supporters believe they will be restored in conference committee.

“We’re getting darn close,” said Sage Eastman, spokesman for Rep. Dave Camp, R-Midland. Camp has been the prime advocate of the auto tax credits in the House.

Under the Senate plan, consumers would receive a tax credit of up to $1,000 for hybrid gas-electric powered vehicles and $4,000 for fuel-cell vehicles — which are under development but are not in the retail market yet. Diesel-powered vehicles were not included.

General Motors Corp. and DaimlerChrysler AG have pushed lawmakers to include diesel in the tax credit mix. Toyota Motor Corp. and Ford Motor Co. have been content to shower most benefits on hybrids.

The Thursday House vote is the latest twist in a protracted legislative battle that has frustrated automakers and environmental groups.

The tax credits are strongly supported by the Bush administration and have bipartisan backing on Capitol Hill. They were a major element of an energy bill that passed both the House and the Senate last year. That legislation collapsed when the two chambers could not resolve differences.

Without tax credits, automakers fear consumers will balk at paying higher prices. Hybrid technology will add about $3,300 to the price of a Ford Escape, company officials said this week. Diesel engines can also add to the price of a car.

An existing clean-fuels tax deduction will be phased out after 2006 without reauthorization from Congress. Under the program, the IRS allows a $1,500 deduction for hybrid cars. Next year, the deduction will drop to $1,000.

The tax credits still face hurdles. Lawmakers are under tremendous pressure to keep costs down on a bill that has been derided as a pork-laden corporate giveaway.

The House included more than $140 billion in tax breaks over the next 10 years to close a $4 billion annual tax benefit to corporations that export products overseas. The World Trade Organization ruled the export subsidy illegal and allowed Europe to slap duties on U.S. products.

Taxpayers for Common Sense, a Washington watchdog group, described the final corporate tax bill as a “schizophrenic assortment of special interest handouts.”

Critics of the tax credits said long waiting lists for the Toyota Prius show that the market for hybrids is doing just fine without help from the government.

But tax-credit advocates point to credits the Japanese government provided when Toyota Motor Corp. and Honda Motor Co. first marketed hybrids there.

Phil Martens, Ford Motor Co. group vice president for product creation, said tax credits will help create enough consumer demand to ensure that hybrids succeed for more than the first year or two. They also signify something bigger and more broad — support for the country as a whole for cleaner vehicles.

“It’s a bit frustrating that we don’t as a nation recognize that these types of transformational changes require support from all parties,” Martens said.

You can reach Jeff Plungis at (202) 906-8204 or jplungis@detnews.com.