The New York Times: Running out of fuel, but not out of ideas
Okay,
Let’s start to solve the problem at the pump in the United States, and let’s do it with a very simple solution. If we offered a tax credit of $2,500 for any new car that got more than 45 miles per gallon (5.22 liters per 100 km), we would start to develop a completely different set of car choices. I am recommending an eight-year tax credit that will force the development of hybrid, diesel, and diesel hybrid technology. In my mind, such a tax credit would attract a lot of people to both hybrids and diesel cars. Such a credit would also actually encourage people to make and buy more fuel-efficient vehicles in a way that the current tax credit for hybrid vehicles does not. Giving a tax credit to someone who buys a car that gets 45 mpg would mean that the owner of a Toyota Prius would get a credit, but the owner of a hybrid 6,000-pound SUV (like the one I have been craving) would not.
To make a change, we need a push to smaller cars, and we need a push to the simplest solution that will get cars to 45+ mpg, and there I say, let the market decide which is better, hybrid or diesel, or maybe diesel hybrid. I doubt that we would be selling more than 400,000 cars under this credit, and the cost would then be $1 billion, frankly a cheap price to pay. Even if 25% of the U.S. car market got the credit and we had 4 million fuel sippers sold each year, we would still be significantly better off and the loss to the treasury would be an insignificant $10 billion. Once we get to critical mass, such a tax credit would not be needed, but due to the 24-month development cycle of car markets, we are going to need eight years of guaranteed credits so that car makers will put the new cars on the lot. The advantage, of course, is that the car makers have lots of cars in Europe and Asia that already get 45 mpg, so this is not that hard of a concept to sell to them.
Let’s do some rough math regarding fuel savings. Let’s say that the cars replaced get on average 20 mpg, and we are improving that by 25 mpg to 45 mpg. On the mythical 15,000 miles per year people drive, each driver would save more than 300 gallons per year. Now that may not sound like a lot, but at $4 per gallon over 5 years, that would be a savings of $6,000 at the pump. Throw in the tax credit of $2,500, and you end up with $8,500 in margin to develop more fuel-efficient cars. Of course, some of this margin has to be captured by the consumer to make them choose the smaller, more efficient cars.
So let’s be simple. Let’s put a $2,500 credit in place for cars that get more than 45 mpg, and let’s let the market decide which technology is going to move the most cars. For the Democrats, this would be easy to sell because cars that get that kind of fuel economy tend to be smaller and cheaper than sport utility vehicles, and so this is a tax credit that will actually help the working class. To ensure that working-class people would be the ones to benefit, and not the wealthy, there would be a limit to the number of these credits a person could receive in a year. That way, the rich couldn’t game the system by buying 20 econoboxes. This would be a very flat tax credit that could help a lot of people who need to save money.
