Be Cautious On Tax Credits

Ohio legislators should take note of a serious mistake made by their neighbors in West Virginia, and steer clear of it. Failure to do so could cost the state dearly in a very short amount of time.

A bill in the Ohio House of Representatives would establish tax credits for purchasers of “alternative fuel” vehicles. Reportedly the plan enjoys wide support.

So did a measure to provide a similar tax credit in West Virginia. It was enacted in 2011. The idea was to encourage purchases of vehicles using compressed natural gas, liquified gas or ethanol. Also included were “flex fuel” vehicles that were capable of using such fuels – whether they actually did so or not.

Tax credits of 35 percent of vehicle purchase prices, up to $7,500, were permitted. It became apparent quickly an error had been made. Many of those claiming the credit bought flex-fuel vehicles and continued to operate them on conventional gasoline.

By last summer, it was estimated the credit already had cost state government $30 million. Some analysts worried the bill could reach $100 million.

Legislators have removed the flex-fuel provision from the credit, but it continues to cost the state substantial sums of money.

Proponents of a similar measure in Ohio want tax credits of 50 percent of the difference in cost between a conventional car or truck and one equipped to run on alternative fuels. The credit would be capped at between $5,000 and $25,000, depending on vehicle size. Electric vehicles would qualify for $500 credits.

Government subsidies for developing technologies often are questionable. Supporters in Ohio insist that because other states are providing subsidies, theirs has to do so. But keeping up with the Joneses, so to speak, is not the best way of making public policy.

In all likelihood, the incentives will be provided. But even if they are sold on the idea, Ohio legislators should look at the details carefully.