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Tax Credits for Hybrid Vehicles, February 7, 2008 1 (February 7, 2008)

handle is hein.tera/crstax0396 and id is 1 raw text is: Order Code RS22558 Updated February 7, 2008 ACRS Report for Congress Tax Credits for Hybrid Vehicles Salvatore Lazzari Specialist in Public Finance Resources, Science, and Industry Division Summary Hybrid vehicles are propelled by a standard gasoline (or diesel) internal combustion engine in combination with an electric motor (and battery storage system), which improves fuel economy. The Energy Policy Act of 2005 replaced a $2,000 deduction for hybrids with a system of tax credits that vary according to fuel efficiency and estimated lifetime fuel savings, compared with a 2002 comparable gasoline-only model. These credits, which range from $250 to $3,400 per vehicle, went into effect on January 1, 2006, and are available through December 31, 2009. However, there is an approximately 60,000-per-manufacturer limit on the number of hybrid vehicles that would qualify for the full credit. Toyota reached its limit in the second quarter of 2006, and the credits for those vehicles are being phased out and will not be available after October 1, 2007. Honda reached its limit in the third quarter of 2007. U.S. manufacturers (primarily General Motors and Ford) produce mostly SUV hybrids, which have seen slower demand. The tax credits for hybrids were enacted to promote energy conservation in the transportation sector by encouraging the demand for fuel-efficient alternative-technology vehicles. The 60,000-vehicle limit was imposed to limit the benefits accruing to foreign hybrid manufacturers, which currently dominate the hybrid market. Section 1341 of Energy Policy Act of 2005 (EPACT05, P.L. 109-58) provides tax credits for four types of advanced-technology vehicles (ATVs): hybrid vehicles, fuel cell vehicles, advanced lean-burn vehicles, and other alternative fuel vehicles. The hybrid vehicle tax credits, which are in Internal Revenue Code (IRC) §30B, are part of a somewhat complex tax credit structure that includes separate credits for hybrid vehicles weighing 8,500 pounds or less and for hybrid vehicles weighing more than 8,500 pounds. Credit for Hybrid Vehicles Weighing 8,500 Pounds or Less For vehicles weighing 8,500 lbs. or less, the formula for computing the credit has two components: a fuel economy credit, and a conservation credit. The fuel economy credit depends on how much greater the hybrid's rated city fuel economy is, in percentage terms, compared to a base 2002 city fuel economy figure for a vehicle in the same inertia weight class as the hybrid. The city fuel economy rating used in the formula is the same figure reported by the vehicle manufacturer to the EPA for purposes of the CAFE Congressional Research Service < The Library of Congress Prepared for Members and Committees of Congress

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