IT’S nice to see that Washington is doing something to encourage the use of energy-saving hybrid engines in cars. Too bad it’s the wrong thing.
Treasury Secretary John Snow dragged his entourage all the way to Detroit last Friday to proudly announce a tax credit for buyers of cars with hybrid gasoline/electric engines.
In fact, the credits were part of an energy bill signed last summer – when gasoline was selling well under $2 a gallon.
But not being one to miss a chance to smile for the cameras, Snow said the purchasers of cars and trucks are entitled to a credit of up to $3,400.
But here is what the secretary didn’t tell you.
Anyone who is subject to the dreaded Alternative Minimum Tax – the so-called rich man’s tax that’s now affecting much of the middle class – would get zilch under this credit.
When I asked, the Treasury Department did confirm that this group of taxpayers would be getting screwed.
Since the better-off, environment-friendly taxpayers caught in the AMT trap are the most likely to buy hybrids, this bit of fine print eliminates the whole purpose of this credit.
Bart Fooden, a bright guy who runs his own accounting firm in Woodbury, N.Y., and pointed this out to me, explained that the credit would still come off a filer’s ordinary tax. But this would increase the amount owed under the AMT by an equal amount.
So it would be a wash.
This flim flam isn’t the only reason this tax credit is a bad idea. The simple laws of economics also make it a loser.
Right now there is no shortage of people who want to buy hybrids, which are in tight supply. Here are some actual numbers, using the Honda Civic as an example.
A local dealer tells me that the Honda Civic EX (a traditional gas engine) has a suggested retail price of $19,610. The identical car with one of these newfangled hybrid engines goes for $22,300.
The dealer says buyers can bargain on the EX, so your price will probably be below the listed one. But on the hybrid you’ll have to pay the asking price – if not more.
Under the rules announced last week, the Honda hybrid seems to be eligible for a $2,100 credit based on its fuel-saving promises.
So how is this tax credit going to work in real life?
Because people will believe they are eligible for a tax credit, this move will likely increase demand for hybrid cars. And when there aren’t enough to go around prices will rise.
And I wouldn’t be at all surprised if the cost of that hybrid Civic goes up by exactly the amount of the $2,100 credit. (And the buyer is going to be really thrilled when he finds out next April that he’s not getting the credit after all because he earned too much.)
Will this credit do anything to increase the availability of hybrid-engine cars? Nope. It’ll just make some dealers richer.
So, what should the government be doing?
I’ve said it before and here it is again: Washington should encourage or even mandate that auto companies make more of their cars’ styles available in hybrid models. Ford is already doing this on its own.
Others will need a little push from the government in the form of a subsidy. And this is where the government should put its clout, not on the retail level.
Only then will hybrids be plentiful both in the showrooms and on the road. And that’s when the economic laws of supply and demand will bring down the price.
But at least Washington is pretending to do something. john.crudele@nypost.com