Dissecting The Stimulus Bill

I spent a few minutes combing through the final version of the economic stimulus bill passed by the U.S. Congress (the huge PDF files are availible here). Here are some highlights, with regards to automotive and transportation related spending.

Divisiion A, Title IV: Energy

• $2 billion for grants for manufacturing advanced batteries and components, to be produced in the U.S.
• $3.4 billion for "Fossel Energy Research and Development". This includes $800 million for "clean coal" research, $1.5 billion for carbon capture and efficiency improvements, and money for geology research for carbon sequestration.
  
• $10 million for administrative costs for the Advanced Technology Vehicle Vehicles Manufacturing Loan program.

Division A, Title XII: Transportation

• $27.5 billion for highway, rail, and port infrastructure spending\
• $105 million earmarked for Puerto Rico highway program
• $550 million earmarked for transportation improvements on Indian Reservations and Federal Lands: $310 million for Indian reservation roads, $170 million for park roads, $60 million for forest highways, $10 million for the Refuge Roads program
• $1.3 billion for Amtrak
• $100 million to fund high fuel economy vehicles for the federal fleet, including gasoline hybrid vehicles, plug-in hybrid vehicles

Division B, Title 1

• Sec. 1008: new vehicle sales tax deduction: sales taxes on new vehicles are federally deductible, for vehicles which cost less than $49,500 and for taxpayers with income below $125,000 ($250,000 married joint filers).
• Sec. 1141: tax credit for plug in hybrid vehicles, $2,500 plus $417 for each kWH of battery capacity in excess of 5 kWH, maximum of $5,000. Phases out after the first 200,000 such vehicles sold after December 2009.
  
• Sec. 1142: tax credit for plug-in electric (battery electric) vehicles, 10% of the cost of such a vehicle, capped at $2,500. Vehicle must have battery capacity of at least 4 kWH, less is allowed if 2 or 3 wheels. 2 and 3 wheel vehicles qualify for the tax credit.
• Sec. 1143: tax credit for plug-in conversion kits, 10% of the cost of a conversion, not to exceed a cost of $40,000 (credit capped at $4,000).
  

A few observations. First, lots of pork in the highway portion, with earmarks specifically for Indian reservations and park roads.

The federal tax deduction for a new vehicle purchase sales tax is nice, but not a huge incentive. Consider: $20,000 vehicle, sales tax of 6%, deduction is $1,200. And if you are leasing, your tax deduction might only be half of that, or less, depending on the value of the lease.

The tax credits for plug-in hybrids, battery electric vehicles, and plug-in conversions are mostly window dressing. In the next few years, there won't be very many plug-in hybrds on the market, and certainly there won't be very many battery electric vehicles, in any volume. Eventually, enough products may enter the market to make this tax credit useful to more people, but it will take years to happen. Plug-in conversions are silly, in terms of their economics, and a 10% discount isn't enough to fix it, I don't see them ever being a high-volume business.

The $2 billion for advanced battery manufacturing grants is a good idea, this should provide a badly needed boost for the domestic battery industry, and should recover some lost jobs. A123 systems has already proposed a battery plant to be built in Michigan, pending government funds.

The "clean coal" money, and carbon sequestration projects are not likely to produce much useful result. I'm not sure there is such a thing, really, as "clean coal", at least not by the standards of the green lobby. Scrubbing coal emissions of CO2, and pumping it underground to hide it may be so expensive that it makes coal non-competitive as a power source. This, of course, may be the whole point. I would have liked to see more money for nuclear power subsidies instead.