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Green Cars – Red Ink?

A shift to electric power could be a financial nightmare for federal and state coffers.

by on Jan.20, 2011

Great for the environment but bad for the Treasury?

Buy a car, get a check.  It worked for Chrysler, three decades ago, when the maker introduced the idea of rebates in an effort to boost lagging sales.  Now, the federal government – and more than a dozen states – are using the same tactic hoping to convince American motorists to switch from conventional powertrain technology to advanced battery vehicles.

The $7,500 federal tax credit is a significant chunk of cash, with a vehicle like the Nissan Leaf reducing its list price by nearly a quarter.  Lawmakers wisely placed limits on the number of battery car buyers can claim the subsidy – and how long the program will operate – to avoid bankrupting an already deficit-plagued Treasury.

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But even when such government-funded sales incentives vanish, battery cars could place a serious strain on both federal, state and, in some cases, local government tax coffers by cutting off a steady and lucrative source of tax revenues, gasoline excise taxes.  That means, in years ahead, lawmakers may be forced to enact new taxes specifically aimed at battery car owners.