Here's a riddle for you. When is US $3000 worth more than US $3000?
I'm going to give you a minute to contemplate that while I give you some advice. Now I know, from my experiences in "group therapy" (many, many years ago in Southern California)(more fun than it sounds, because nude group therapy was one of the things this shrink believed in) that unsolicited advice is a kind of insult because it implies that you believe that you know more than the person to whom you are offering your advice, and that they "need" you help to solve their own problems or improve their life. Besides all that negativity, unsolicited advice is usually poorly received, rarely given any attention, nor results in any proactive action anyway.
I am handing out this "free" advice because it could be worth US $3000 (or rather, more than US $3000) to you.
People who make a living as consultants have a saying: "Free advice is worth every penny you pay for it." Now, having been a consultant for a long time, I know that little homily is not true. The accurate version is that, "Free advice is USUALLY worth what you paid for it."
Ultimately, in spite of how statisticians and odds makers look at it, the practical bottom line is that most things are fairly 50/50 propositions. Either you do, or you don't. Advice comes in two grades, good and bad. The chance that the outcome of free advice will be as good as professional opinion is, in a truly statistical sense, not nearly as good as the 1 in 2 chance. But, back on the practical level, either it turns out to be (roughly) what the pro's would have advised, or against what the pro's would have advised. And professional advice can be wrong too.
Keeping all that in mind (or course you are, aren't you?) This is what I learned in the last couple of weeks. Hybrid automobiles (notice I didn't say "cars" and I didn't say "sedans") are a good thing. Plug-in hybrid will be even better, but you may not want to wait for "better" because of the government incentives right now. You see the federal government (which is to say the people who influence government policy, the really big money folks) want you to buy into this petroleum consumption reduction plan, and hybrid vehicles are a step in that direction. The government, therefore, is offering a "rebate" incentive of their own, through everybody's favorite government agency, that much beloved division of the Treasury Department, the Internal Revenue Service. Yes, the IRS has offered to give you a tax credit. You may have to run and jump through a moving target of variable size, a process that is somewhat like threading a needle with a bow and arrow from a galloping horse, but the rebate is there of the taking if you act fairly soon.
And here's the answer to: "When is US $3000 worth more than US $3000?"
When it is a tax credit the $3000 is worth not only $3000 but it is "non-taxable income" so whatever your tax bracket you don't have to pay income tax on it because it is never actually put in your hands, you just deduct it from the amount of tax owing at the end of the year. So it is worth more than an earned amount of $3000 (or even a capital gain of $3000) on which you would have to pay taxes. And then, on top of that, because it wasn't income, and it is applied directly to your tax liability, it is in effect, worth $3000 PLUS whatever percentage of tax you would have owed on that amount of income. Some people will say that this logic is "double dipping", and it may be, but from my perspective, it has not only come to you free of the liability of the tax you would owe if you earned it, it also replaces the $3000 of earned income you would have had to use to pay your prior tax liability in any case.
So if you buy one of these hybrid vehicles now, you may get to deduct, straight off your federal tax liability (in the USA only, of course) the amount the IRS has designated at the tax credit for the particular model you are buying. You must be the original purchaser of a NEW vehicle to qualify, and it has to be before the manufacturer has hit the sales quota of 60,000 vehicles in that particular quarter of the calendar year. Now it gets even trickier. If you purchase before the end of the month in the quarter of the year in which maker sells 60,000 hybrid cars, you get to take the full tax credit, but if you purchase one day later, on the first day of the month of the next quarter (for instance June 30 versus July 1, 2007) and the maker sold a total of 60,009 hybrid by June 30, 2007, you only get to take a 50% reduced tax credit for your purchase.
I can see where this "gambler's spirit" might appeal to those who can hardly wait to start their vacation in Vegas, but to the rest of us it is just confusing, because for the following 2 quarters you still get the 50% tax credit, but in subsequent 2 quarters after that, you only get 25% of the original credit amount.
Here's an extract from the IRS web site (you can see the "whole thing" here.)
This reflects a decrease in the credit amount as of Oct. 1, 2006, due to the manufacturers meeting quarterly sales of 60,000 qualified hybrid cars See Quarterly Sales, below.
This credit amount does not phase out. The full amount of the altenative[sic] fuel vehicle credit would be available for vehicles purchased on or before December 31, 2010.
Model Year 2008
- Ford Escape 2WD Hybrid Model Year 2008 $3,000
- Mercury Mariner 2WD Hybrid Model Year 2008 $3,000
- Ford Escape 4WD Hybrid Model Year 2008 $2,200
- Mercury Mariner 4WD Hybrid Model year 2008 $2,200
Model Year 2007
- Chevrolet Silverado 2WD Hybrid Pickup Truck $250
- Chevrolet Silverado 4WD Hybrid Pickup Truck $650
- Ford Escape Hybrid 2WD $2,600
- Ford Escape Hybrid 4WD $1,950
- GMC Sierra 2WD Hybrid Pickup Truck $250
- GMC Sierra 4WD Hybrid Pickup Truck $650
- Honda Accord Hybrid AT $1,300
- Honda Accord Hybrid Navi AT $1,300
- Honda Civic GX $4,000
- Honda Civic Hybrid CVT $2,100
- Lexus GS 450h $775
- Lexus RX 400h 2WD and 4WD $1,100
- Mercury Mariner 4WD Hybrid $1,950
- Nissan Altima Hybrid $2,350
- Saturn Aura Hybrid $1,300
- Saturn Vue Green Line $650
- Toyota Camry Hybrid $1,300
- Toyota Prius $1,575
- Toyota Highlander Hybrid 2WD and 4WD $1,300
[The list includes 2006 models and even 2005 models of Prius, Escape and others, but since you have to be the ORIGINAL purchaser of a NEW vehicle to claim the tax credit, it seems a little unlikely that you would find that part of the list useful.]
Quarterly Sales
Consumers seeking the credit may want to buy early since the full credit is only available for a limited time. Taxpayers may claim the full amount of the allowable credit up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th hybrid or advance lean burn technology. For the second and third calendar quarters after the quarter in which the 60,000th vehicle is sold, taxpayers may claim 50 percent of the credit. For the fourth and fifth calendar quarters, taxpayers may claim 25 percent of the credit. No credit is allowed after the fifth quarter.
There is also a slightly more detailed page on the IRS web site that lists all this in table form, which might make it easier to understand the tax credit phase out. Toyota's (including Lexus) sales have been so successful that they are already in the phase out to $0 phase by October of 2007. The Prius has been a big hit over the years, especially as compared to Ford's Escape Hybrid which has been available since 2005, and they are still eligible of the full rebates. They are nice cars (SUV's actually) and the Mercury Mariner Hybrid is just slightly better appointed, for just slightly more money. Both Ford and Mercury versions of the 2WD models have a $3000 tax credit available as of the date of this writing (June 2007). The 4WD versions get slightly less credit.
How green can you get? Well, I didn't ask the cost, but I did tell him he looked "greener than Shrek" when an acquaintance told me recently that he was supervising the installation of PV solar panels, batteries and inverters so that the construction team could use solar power to build his off-the-grid house, where he will continue to use the internet via (2-way) satellite connections. No big surprise about his attitude really. He works for a company called Google, who themselves just came online this month with a 1.6 megawatt solar installation at their headquarters in Mountain View, California. According to the contractor, EI Solutions, this should save Google about $393,000 a year in energy costs, and therefore the system will have paid for itself in 7.5 years. Google has further announced a grant program to promote renewable energy, and specifically is promoting not just plug-in hybrids (they offer $5000 subsidy to employees who purchase a vehicle that gets MORE than 45 mpg, so the parking lot is well seeded with Prius' and Plug-in converted hybrids), but also a program by which plug-in hybrids can "feed the grid" during peak demand time, then draw during non-peak periods. In other words, that the electric utility companies can use the batteries in (properly equipped) hybrid cars as an extension of their capacity without generating more electricity during peak demand hours. Presumably this kind of a program would be something like the "net metering" plans offered by many electric utilities in which the customer has some generating capacity of their own, so feeds the electric grid with their excess power when they have it, and draws power from the grid when they need it. Such arrangements are sometimes (often?) very unfair to the customer supply of excess generated power, because they buy from the utility at an industrial or commercial rate, but sell back to the utility at their "calculated avoided cost" (costs avoided to expand generating capacity) which in some cases is calculated to be as low as $0.02 per kilowatt hour.
I ask you, if you were a shareholder in a utility company (or any company) who could build and operate more capacity for $0.02 per unit of sales that they can sell for $0.06 per unit, wouldn't you want to know why the company was not building capacity as fast as it could?
More and more I am seeing this as a dog in the manger move by the National Biodiesel Board. At the moment snarling/smiling like a pit bull, Texas Congressman Lloyd Doggett has introduced a bill he calls the "Renewable Energy Responsible Tax Credit Act of 2007"(aka H.R.2361) in which he proposes to reverse the IRS ruling that non-ester renewable diesel would be eligible for a tax credit (to the "blender") of $1.00 for every gallon of such fuel used for motor vehicles. Doggett is currying favor with his constituents in the agricultural community who supply vegetable oils to the biodiesel makers (and some who are biodiesel makers) because they object to the idea that the ConocoPhillips/Tyson deal to render animal fats into non-ester renewable diesel will entitle ConocoPhillips (as the blender) to the $1 tax credit that was intended to stimulate new production capacity in the realm of biodiesel specifically. The bill actually says that its intent is to "disallow the credit for renewable diesel in the case of fuel coproduced [sic] with petroleum, natural gas, or coal feedstocks." Mr. Doggett wields a pretty broad ax there.
Gary Mickelson, a Tyson spokesperson told a Bloomberg reporter "Denying the tax credit will only serve to limit the expansion and availability of alternative fuels and also damage the ability of livestock farmers and ranchers to participate in the renewable energy business,'' Mickelson said in an e-mail, citing support for the IRS ruling by the National Cattlemen's Beef Association, National Pork Producers Council, National Chicken Council and Texas Cattle Feeders Association. In the same article, Bloomberg reporter, Ryan Donmoyer says that James Woolsey (former CIA Director from 1993 to 1995) came down on the "anti" side of tax credits for co-produced renewable diesel, but then he says that somehow this (having the tax credit, not removing it) will drive companies that produce energy from wastes to migrate to Europe. I, frankly, don't see the connection. I wrote an email to Mr. Donmoyer to see if he can clarify this to me. If he does, I will try to remember to pass it on to you.
To end on something upbeat today, I would like to note that Mayor [billionaire] Michael Bloomberg announced that he is now an independent (non-aligned) person, no longer a member of the Republican party, though it has long been acknowledge by many that his shift from the Democratic Party was a matter of convenience because he couldn't get the mayoral nomination of the Democratic Party in New York City. He's been seen as a liberal democrat (small letters) throughout his highly praised term as mayor. The odd thing was that the political pundits seemed to think that if he entered the presidential race as a "third party" candidate that he would MOST damage their own party's nominee. That is to say, that conservative, generally Republican aligned, folks thought Mayor Bloomberg would draw most of his votes away from the Republican nominee, while Democrats thought he would draw much of the centrist votes from normally Democratic voters. More worrisome, still, to both parties is that he would be taking away at least some of the swing voters who are themselves, officially, independents. Now, adding spice to this Sam Waterston, of NBC's "Law and Order" is a spokesperson for an organization seeking to draft a third party candidate. On TV Waterston plays the boss of District Attorney Arthur Branch, played by none other than Republican (semi-undeclared) Presidential Nomination Candidate, Fred D. Thompson. Waterston appeared on George Stephanolpolous' This Week program this Sunday (June 24, 2007), where he protested that he, himself, was not going to anoint any candidate, that his organization would choose their candidate in an "online, internet convention". But meanwhile, he thought Bloomberg would be a good centrist candidate, meeting his organization's objective to mitigate the polarization of the two established parties. Waterston is not a latecomer to this party either, he has been a spokesperson since at least December 2006 for the UNITY '08 grassroots movement. Apparently CBS's Bob Schieffer agrees with my observation that the Immigration Reform bill before congress has been stymied by both sides in an attempt not to offend their "base" supporters, so he, too, is wondering if a Third Party might be a good idea.
But the "good news" of the day, again reported by George Stephanopolous was that recent polls show Senator Hilary Clinton ahead of all the leading Republican candidates, including semi-undeclared Fred Thompson. I am fairly certain that a Clinton/Obama ticket would be unbeatable in 2008, as long as they don't start a backlash from being over-confident. I could be wrong. There is a distressingly large quantity of racism remaining in the country that could work against Senator Obamas candidacy, whether at the top or second on a Democratic ticket. The Republican's also might be right that the "beatable" candidate is Senator Clinton, because between men who won't vote for a woman (in spite of the number of other countries who have been led by women, including Canada, Britain, and even Islamic Pakistan) and those who just don't like her "style" and "liberal" views (when did "liberal" become a bad word?) she might not make it against a Reagan-esque populist who also satisfies the social conservatives. The combined negativity against a Clinton/Obama ticket could make the race more exciting that I expect it to be. But the one aspect that looms to doom Republican (and generally conservative) criticism of that pair is that going too negative could end up sinking their ship of state, not the probable Clinton/Obama juggernaut.
Love,
Stafford "Doc" Williamson
