http://www.teslamotors.com/modelx will shortly show the launch of the new electric SUV (not “pavement-melting SUV,” which had become almost a Homeric epithet). Fully loaded this is a $132,000 car. If you pay federal income tax you will be contributing to a $7,500 subsidy for each person (a.k.a. “rich bastard”) who buys one. It seems like a marvelous engineering achievement so… who else is excited to be offered the opportunity to work extra hours every year in order to help rich people buy this new toy?
And when do we get to subsidize an all-electric Rolls-Royce?
[Disclosure: A rich friend of mine has one of these on order and I am looking forward to riding in his.]
Isn’t it the case though, that 1) the purchase will (unless run through an LLC as a business vehicle) be paid for with after-tax dollars? Even a 15% long term capital gains tax on whatever earnings generated the $132K would be more than the subsidy 2) the sales tax in many states will be equal to or greater than the subsidy – so in this case you could say it was a transfer from the FedGov pocket to the StateGov pocket.
Seems at least as noble a cause as subsidizing “even richer bastards” through bonus depreciation on new aircraft used for business….
More seriously, any subsidy (or tax) on a purchase is effectively going to be split between the buyer and the seller, in that you would generally expect the seller to increase the price of the product to partially offset the decrease in post-subsidy cost to the buyer. In the same way, if a particular state raises its personal income tax, you would expect that employers would have to raise salaries in the long run to at least partially offset the tax increase, so as to avoid losing employees to companies in other states. (And to some extent, companies will move to lower-tax states in order to avoid having to pay these greater wages.)
It seems to me that Tesla is setting its price based upon what the market will bear. It has a several month wait for cars, and it hasn’t spent any money on advertising. Historically, it has been production capacity constrained, and in those circumstances, the rational pricing strategy is probably to increase the price to the level where the market clears at the number of cars sold equal to the number you can produce. The existence of the $7500 subsidy means that the market-clearing price is about $7500 higher than it would be without the subsidy. That tells me that (1) once the subsidy disappears in a couple years, Tesla’s prices will drop by around $7500 per car, and (2) in the interim, the tax subsidy is almost entirely going to Tesla, not to the customers.
If you buy that analysis, then the question is not whether taxpayers should be subsidizing folks wealthy enough to buy Teslas. Rather, the question is whether the government should be subsidizing Tesla and other companies like Nissan and GM that make significant numbers of electric cars.
Hope you enjoy the ride!
Anyone who thinks that battery powered vehicles MIGHT play a role in our transportation system should be willing to pay the subsidy. After all, the incumbents benefit from government subsidies and network effects established (in part) using government subsidies. Sometimes the government can help provide the activation energy needed to push the economy out of an undesirable local minima. In this case, the cost is small enough and the potential payoff high enough that the experiment is worth trying even if it ultimately fails.
To put my post above a little more succinctly and precisely, my claim is that under current conditions the supply of Teslas is highly inelastic, driven by constraints on the manufacturing capacity of Tesla and its suppliers. The demand for Teslas is relatively elastic, since anyone buying a Tesla has other car options from other manufacturers that provide similar (though obviously not identical) mixes of performance, comfort, prestige, etc. Surely there are some Tesla buyers who would want one even if the price were doubled, but I suspect it is a small fraction of the total.
Where demand is elastic and supply is inelastic, any tax or subsidy falls primarily on the supplier. Search for “tax incidence” for more details.
What portion of fossil fuel is subsidised by the funding of the us military?
To be fair, and as others have pointed out, we subsidize every ICE on the road in the form of extensive military engagements in the Middle East and elsewhere. I for one would like to see us subsidize Teslas instead of Saudi princes.
And that’s not even getting into the environmental externalizes.
Having test driven a Model S, I recommend you schedule your own test drive. There’s one in Natick Mall. Their stores are not pushy car dealers. It’s like walking into the Apple store, picking up the newest gadget and playing with it. Only it’s a very safe, cool car, with a twenty year usable life, with very little maintenance i.e. tire replacement, which you can drive for free. According to AAA, the cost to own and operate a large sedan is $10,649 per year. From this perspective, a $70,000 Tesla, is significantly less expensive per year to own and operate than a large sedan.
As far as subsides go, at least I am subsidizing, what I view as a positive change, unlike the subsidies mentioned above.
@paddy: so in this case you could say it was a transfer from the FedGov pocket to the StateGov pocket.
and from StateGov pocket to the firefighter pension plan
Oh well, in 2010, obama gave me, my father, and my brother each a $10K tax credit for purchasing new homes, and each of us are millionaires.
^ $8000K
@Steve, jsel
I know that without our military larger than the rest of the world’s combined, the Cubans and Nicaraguans would be landing paratroopers in North Dakota to seize our precious bod… that is, our oil.
Still, over ninety percent of US petroleum comes from domestic sources plus imports from our stable first world neighbors in Canada and Mexico. The US military has little stake in the next nearest major exporters in Venezuela and Brasil.
China and Japan may worry about what happens in the Middle East, but they don’t worry a lot. If the US stopped mussing around there, whichever strongmen emerged would be happy to get rich exporting the oil.
Of course, that would mean the aristocracy of pull on the Potomac wouldn’t get to play the Great Game with human lives across the planet anymore. Military contractors might starve to death in the cold winter merely lavish federal contracts when the ludicrous present ones end.
But oil supply is in no way subsidized by our military.
“Subsidized oil” commenters: I would be grateful if someone explained to me how it is that military spending reduces oil prices. As far as I know the military did not invent fracking. (And the military purchases oil, therefore driving up prices according to Econ 101 (supply-demand curves).)
Unless something has changed, high income people are ineligible for the $7500 Fed tax credit. (unless they are smart enough to lease it, then buy out the lease)
Several years ago, our 1%er friends (great people!) bought a hybrid Ford Escape, but were later disappointed to find out they made too much $$$ to qualify for the credit. I think it starts disappearing at around $150,000.