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Staggering Complexity of Fuel Tax Credits

1 min readBy: Gerald Prante

As gas prices rise and the calls for conservation continue, many lawmakers are congratulating themselves for adding fuel taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. credits to the recent energy bill. But given the staggering complexity of the various credits and bonuses, it’s not clear whether the tax savings are worth the headache. From U.S. News & World Report:

If you want a nice tax break for buying a hybrid vehicle, it might be worth waiting till January. But not much longer than that.

Congress has changed the law to create a new tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. program for “alternative motor vehicles,” potentially broader and more valuable than the old tax-deduction program—but far more complicated. Each car will carry a different tax credit, depending on its fuel economy, weight, and tailpipe pollution.

Another twist: Even though the program purportedly extends to 2010, tax breaks on the most popular vehicles will run out before the end of next year. That’s because Congress has limited the number of cars eligible for the tax credit by manufacturer. As soon as an automaker has sold 60,000 hybrids, the tax credit phases out.

If you can handle an even more in-depth explanation of the staggering complexity of these credits, read the full story here.

The intension may have been to boost environmental quality and lower energy demand, but the end result may be drug stores stocking up on aspirin around tax time. Further evidence of the many flaws in the recent energy bill. For more proof, see here, here, here, here, here.