When a good thing goes bad: The problem with tax credits
We can think of several adverse effects. But are they enough to offset the advantages?
According to the Air-Conditioning and Refrigeration Institute (ARI), as reported in the March 22 News, tax credits proposed in the FY 2000 federal budget are part of a plan to reduce greenhouse gas emissions.
Under the plan, purchasers of high-efficiency equipment could obtain a 10% federal tax credit, not to exceed $250, for purchasing a minimum 13.5-SEER unit, or a 20% tax credit for purchasing at least 15-SEER equipment.
The 13.5-SEER incentives would continue until 2002, while the 15-SEER incentives would continue until 2004. If passed by Congress, the tax credits would become effective in the year 2000.
ARI supports the incentives and it’s not difficult to understand why.
High-efficiency equipment is good for everyone. End-users save money on operating costs, less energy use means less pollution, and the industry profits from increased sales.
Only a few years ago, homeowners were encouraged to tear out their still-working equipment and replace them with “high-efficiency” 10-SEER units. Now they can improve on that efficiency by another 50% with today’s high-end equipment.
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Trouble is, the most efficient equipment is also the most expensive. The technology demands a premium price, and the economies of scale have not kicked in fully with their limited production runs. And the early-adopter types who are attracted to this hardware will not necessarily balk at higher price tags. Besides, it makes the 12-SEER equipment look like an absolute bargain once the customer sees the price difference.
Tax credits appear to offer the best of all worlds. The industry gets its price, the customer gets a break, and the government gets to do good for the environment.
So should we quit carping and jump on the bandwagon? Sorry. We can’t stand in absolute opposition to this plan, but we can’t support it fully either. Here’s why.
- Hvac equipment makes economic sense on its own merits. It doesn’t need government-sponsored price supports.
High-efficiency equipment saves money. If it doesn’t save enough money to justify its price, then the price must come down, or the savings must go up. It’s a simple equation that has worked for many years and isn’t broken.
- The net effect of the credits will not be high enough to make a large difference in a sale closing.
If $250 was really $250, it might affect a few fence sitters, but let’s be honest. As long as the feds are picking up the tab, maybe the price could creep up just a wee bit. Maybe the discount that could have been offered can be shelved. Why should customers get all the gravy?
- Tax credits are an addiction. The only time to “just say no” is before you try them.
Sure, you can stop using any time. Just not today. Please, God, not today! Because once the credits are gone, somebody must make up the difference and there won’t be many volunteers to stand first in line.
Don’t believe it? Go talk to your friendly solar dealer. Surely there’s one on every corner by now.
- It’s a waste of federal money. Excuse our naivete, but just because everyone else is wallerin’ in the pork barrel doesn’t make it right. We don’t need it and neither do our customers.
- The credits are a bribe. How much energy will a few more 13.5- and 15-SEER units really save? Enough to make an appreciable difference in the total emissions of greenhouse gases? Someday, maybe, but not very soon.
No, the real intent is to give more people a vested economic interest in seeing the Kyoto Protocol passed. Corporate America is receiving a package of incentives to implement the protocol as though it already were in effect. The Clinton administration believes this will make actual passage less painful.
You may already support the Kyoto Protocol, but should you get paid for it?
- Further federal intrusion into the industry should not be encouraged. Are you replacing the coil when you replace the condensing unit? Can you prove it? Here’s a few new forms to fill out with every sale. And, by the way, the FTC would like to look over your shoulder to see what sort of claims you’re making for high efficiency.
Also, the IRS wants to know how much extra profit you’re bringing in. And DOE has decided to audit the program. Would you mind opening your books? They’ll try to keep the information confidential, of course.
On the other hand, a federal tax credit could temporarily boost sales of high-efficiency equipment. So you’ve got that going for you, which is nice.