The Corner

Subsidies for Supercars

The good people of Ontario are expected to be scandalized that subsidies for plug-in hybrid automobiles are being used to — hold on to your butts! — subsidize plug-in hybrid automobiles.

At issue is a government tax subsidy paid out for buyers taking home an example of Porsche’s (truly awesome) new 918 Spyder, a largely electric high-tech supercar. The cars cost nearly $1 million a copy, a phenomenal sum but one that still leaves the gentlemen from Stuttgart losing money on each sale, according to many automotive analysts and the guys at Road & Track.  Companies such as Porsche build cars like this one to test and refine technological innovations, and to provide a “halo” effect for the models off of which they do make money. When the technology from the million-dollar supercar shows up in your daily commuter ten years down the road, you can send a thank-you note to the rich-guy early adopters who subsidize product development in the automotive business much the same way they do in other industries.

Governments have decided, for various reasons, that they like plug-in hybrids, electric cars, alternative-fuel vehicles, etc., and that they will therefore subsidize the purchase (and, in some cases, the manufacture) of such vehicles. That is pure economic central planning and destined to result in nothing other than the misallocation of scarce resources, but leave that aside for the moment. If you create subsidies, you should not complain when people take advantage of the subsidies you created. That is what they are there for.

In the U.S. context, this is a truly maddening phenomenon. In every State of the Union speech he ever has made, Barack Obama has proposed creating a portfolio of new tax credits and direct and indirect subsidies for businesses. He also complains a great deal about businesses not “paying their fair share” and exploiting “loopholes” in the law. But companies such as General Electric do not end up with $0.00 federal tax bills because of “loopholes.” They end up with those bills because of intentionally designed features of the tax code, namely those manufacturing credits so beloved of politicians, ordinary deduction of business expenses, etc.

Hillary Rodham Clinton’s economic agenda, such as it is, is composed of very little other than promises to create new tax subsidies for politically favored businesses. She proposes to be the Queen of Loopholes, the Mother of All Loopholes, Khaleesi of the Great Big Loophole, etc. She sometimes calls this the “Manufacturing Renaissance Tax Credit” (“renaissance” — remember the Clintons and those “Renaissance Weekends”?) and it is very similar to existing and proposed manufacturing credits that politicians have been hawking for decades.

You know what politicians do after creating those manufacturing tax credits? They complain about them. Endlessly. 

The textbook case of this is known as the “Starbucks footnote.” In 2004, Congress decided, in its wisdom, to create a new manufacturing tax credit. A great many food-processing businesses argued that their operations should be included under “manufacturing,” inasmuch as they operated factories in which people were employed to create consumer goods. And food-processing is, in fact, a branch of manufacturing. Starbucks coffee-roasting, grinding, and bagging operations meet this definition; hence, Starbucks became a “manufacturer” for tax purposes, at least for some activities related to its non-retail operations.

Politicians love to bitch about General Electric, but the means by which that firm habitually lowers its tax bills — manufacturing credits, green-business credits, etc. — aren’t “loopholes,” but rather are exactly the sort of things that Democrats go around giving speeches about creating while everybody in the crowd goes “rah-rah-rah-jobs.”

One of two things needs to happen: Politicians either need to stop creating tax credits in order to get businesses and consumers to do things that politicians want them to do, or they should stop complaining when their policies work. One or the other, gentlemen. One or the other.

And if you want to have subsidies for plug-in hybrids that exclude awesome German supercars, then write the damned law that way, you miserable clods. You are, after all, lawmakers. That’s what you supposedly do. 

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