4 ms·

> the subsidy increases the more you earn and the higher your taxes What's the name of this law called that does this? Seems like quite the oversight.

22c 3y ago
It's not a law, it's math. Anything that comes out of pretax income is a bigger incentive (dollar-wise) for those who have a higher tax rate.
- jjtheblunt 3y ago
  math is law! :)
manquer 3y ago
That is true for a lot of government schemes that work with credits , you need to have taxable income to benefit from tax credits , so higher income means more benefits up to a point
GeekyBear 3y ago
> What's the name of this law It's a consequence of progressive tax rates. Last year in the United States, for example, no matter how large your salary was, a single person's income tax rate for the first $10,000 of salary you earned was 10%. The portion of your salary above that $10,000 is taxed at a higher rate, and as you cross salary amount thresholds (called tax brackets) the tax rate keeps getting increasing for the amount above that threshold. By the time you get up above the $540,000, the portion of your salary above that $540,000 is taxed at the maximum 37% rate. So if you purchase a big ticket item that is deducted from your salary before they figure out how much taxes you owe, high earners can save quite a bit.
- lh7777 3y ago
  In the US, this is accurate for other clean energy incentives, but EVs get a $7500 tax credit rather than a tax deduction so the benefit doesn’t depend on tax rate. The credit is not available for incomes over $150k (single) or $300k (married filing jointly), but the credit is also non-refundable, which means it can only reduce your tax to zero. If your total tax is < $7500, you don’t get the rest back as a refund. This means that, for example, married couples earning less than ~$95k don’t get the full credit.
stubish 3y ago
It is Salary Sacrifice, where an employer agrees to swap salary for some non-cash reward. Employee gets less cash and the benefit (eg. a car). Employer pays Fringe Benefits tax on the benefit, employee doesn't pay tax on the salary they sacrificed. The trick is that there is no fringe benefits tax on electric cars, in one of the few ways Australia is actually promoting them. https://www.ato.gov.au/Business/Fringe-benefits-tax/Salary-sacrificing/ https://www.ato.gov.au/Business/Fringe-benefits-tax/Salary-s... So people in the highest tax bracket can get cheap luxury cars, and everyone else left out in the cold while we wait for government to incentivize affordable electric vehicles on the market. You can still count on one hand the number non-luxury electric car models on the market (<$70,000 AUD). Cheapest is still $50,000 AUD ($33k USD)
- einpoklum 3y ago
  For people living in cities/towns, how much of an option is it to go car-less? Is it more like, say, Dutch cities, or more like in the US? Anyway, whenever I hear talk of promoting EVs without mass transit being mentioned together with it, my instinct is to assume it's some sort of an upwards-transfer-of-wealth scheme in which richer people get subsidized.
  - danielheath 3y ago
    It's not quite as extreme as the US, in the city center you can manage okay without, but it's mostly not an option.
    - thundergolfer 3y ago
      You can manage fantastically, not merely okay, without a car in Sydney and Melbourne’s city and inner suburbs. Most people I knew who lived in those areas did not own a car and were better for it.
      - danielheath 3y ago
        Fair, I lived in East Melbourne for a couple of years and having a car was entirely unnecessary.
nivenkos 3y ago
It's not really a subsidy, just you don't pay income tax on it as salary sacrifice. Ideally there's be no income tax or VAT at all, and we'd tax wealth/land/property instead so this would be a non-issue.
- gorby91 3y ago
  Money being collected and then paid back is not required for the government to be subsidising something. It is sufficient that's the revenue collection be foregone.
- TheCoelacanth 3y ago
  If you pay income tax on everything else, then a carveout for a specific item is a subsidy.
Beldin 3y ago
To play devil's advocate: this puts higher-quality EVs within reach for more people. Some might go all out on a very expensive EV, but presumably most will just want bang for their buck. In turn, plenty of these vehicles will enter the second hand market, starting from a few years down the line. Back to reality: such effects smell like trickle down economics to me. They may work, provided the rules stay the same. Around here, the govt eradicated the subsidies on hybrids right before the first generation lease hybrids were about to enter 2nd hand market. So we collectively sponsored a bunch of well-off consultants getting fancy cars that were, after the leases ended, all exported :s.
- bryanlarsen 3y ago
  It sounds good in theory. Poor people don't buy new cars, they buy used cars. It's hard to lower the price of used cars by subsidizing them since they are in fixed supply. If you subsidize them the demand increases. The increased demand raises the price, neutering the subsidy. The way to lower the price of used cars is to subsidize new cars and then waiting 3-10 years. But that doesn't work well either, because pricing is global, and because the demand split for EV/ICE changes every year.
- belltaco 3y ago
  > Back to reality: such effects smell like trickle down economics to me These feel like scaling down costs rather than trickle down economics. Almost every home good or vehicle, electronic devices, computer parts were super expensive when they came out. The initial presumably rich people fund the factories that eventually mass produced them by buying these super expensive goods which lowered the prices to where the middle class can afford them. It also allows companies to iron out initial issues with production and usability before mass producing items. Government subsidies and incentives drive this process faster and make it more likely to not die out by trying to ensure that the companies can survive when upfront costs are very high before the first few goods can even ship to the few people that can afford them. Trickle down economics is something quite different.

22c 3y ago

It's not a law, it's math. Anything that comes out of pretax income is a bigger incentive (dollar-wise) for those who have a higher tax rate.

jjtheblunt 3y ago
math is law! :)

manquer 3y ago

That is true for a lot of government schemes that work with credits , you need to have taxable income to benefit from tax credits , so higher income means more benefits up to a point

GeekyBear 3y ago

> What's the name of this law It's a consequence of progressive tax rates. Last year in the United States, for example, no matter how large your salary was, a single person's income tax rate for the first $10,000 of salary you earned was 10%. The portion of your salary above that $10,000 is taxed at a higher rate, and as you cross salary amount thresholds (called tax brackets) the tax rate keeps getting increasing for the amount above that threshold. By the time you get up above the $540,000, the portion of your salary above that $540,000 is taxed at the maximum 37% rate. So if you purchase a big ticket item that is deducted from your salary before they figure out how much taxes you owe, high earners can save quite a bit.

lh7777 3y ago
In the US, this is accurate for other clean energy incentives, but EVs get a $7500 tax credit rather than a tax deduction so the benefit doesn’t depend on tax rate. The credit is not available for incomes over $150k (single) or $300k (married filing jointly), but the credit is also non-refundable, which means it can only reduce your tax to zero. If your total tax is < $7500, you don’t get the rest back as a refund. This means that, for example, married couples earning less than ~$95k don’t get the full credit.

stubish 3y ago

It is Salary Sacrifice, where an employer agrees to swap salary for some non-cash reward. Employee gets less cash and the benefit (eg. a car). Employer pays Fringe Benefits tax on the benefit, employee doesn't pay tax on the salary they sacrificed. The trick is that there is no fringe benefits tax on electric cars, in one of the few ways Australia is actually promoting them. https://www.ato.gov.au/Business/Fringe-benefits-tax/Salary-sacrificing/ https://www.ato.gov.au/Business/Fringe-benefits-tax/Salary-s... So people in the highest tax bracket can get cheap luxury cars, and everyone else left out in the cold while we wait for government to incentivize affordable electric vehicles on the market. You can still count on one hand the number non-luxury electric car models on the market (<$70,000 AUD). Cheapest is still $50,000 AUD ($33k USD)

einpoklum 3y ago
For people living in cities/towns, how much of an option is it to go car-less? Is it more like, say, Dutch cities, or more like in the US? Anyway, whenever I hear talk of promoting EVs without mass transit being mentioned together with it, my instinct is to assume it's some sort of an upwards-transfer-of-wealth scheme in which richer people get subsidized.
- danielheath 3y ago
  It's not quite as extreme as the US, in the city center you can manage okay without, but it's mostly not an option.
  - thundergolfer 3y ago
    You can manage fantastically, not merely okay, without a car in Sydney and Melbourne’s city and inner suburbs. Most people I knew who lived in those areas did not own a car and were better for it.
    - danielheath 3y ago
      Fair, I lived in East Melbourne for a couple of years and having a car was entirely unnecessary.

nivenkos 3y ago

It's not really a subsidy, just you don't pay income tax on it as salary sacrifice. Ideally there's be no income tax or VAT at all, and we'd tax wealth/land/property instead so this would be a non-issue.

gorby91 3y ago
Money being collected and then paid back is not required for the government to be subsidising something. It is sufficient that's the revenue collection be foregone.
TheCoelacanth 3y ago
If you pay income tax on everything else, then a carveout for a specific item is a subsidy.

Beldin 3y ago

To play devil's advocate: this puts higher-quality EVs within reach for more people. Some might go all out on a very expensive EV, but presumably most will just want bang for their buck. In turn, plenty of these vehicles will enter the second hand market, starting from a few years down the line. Back to reality: such effects smell like trickle down economics to me. They may work, provided the rules stay the same. Around here, the govt eradicated the subsidies on hybrids right before the first generation lease hybrids were about to enter 2nd hand market. So we collectively sponsored a bunch of well-off consultants getting fancy cars that were, after the leases ended, all exported :s.

bryanlarsen 3y ago
It sounds good in theory. Poor people don't buy new cars, they buy used cars. It's hard to lower the price of used cars by subsidizing them since they are in fixed supply. If you subsidize them the demand increases. The increased demand raises the price, neutering the subsidy. The way to lower the price of used cars is to subsidize new cars and then waiting 3-10 years. But that doesn't work well either, because pricing is global, and because the demand split for EV/ICE changes every year.
belltaco 3y ago
> Back to reality: such effects smell like trickle down economics to me These feel like scaling down costs rather than trickle down economics. Almost every home good or vehicle, electronic devices, computer parts were super expensive when they came out. The initial presumably rich people fund the factories that eventually mass produced them by buying these super expensive goods which lowered the prices to where the middle class can afford them. It also allows companies to iron out initial issues with production and usability before mass producing items. Government subsidies and incentives drive this process faster and make it more likely to not die out by trying to ensure that the companies can survive when upfront costs are very high before the first few goods can even ship to the few people that can afford them. Trickle down economics is something quite different.