In an effort to decrease the amount of greenhouse gas emissions, the U.S. government offers federal income tax credits to taxpayers who invest in lower-greenhouse gas alternatives. Since 2006, these "clean energy" tax credits have cost $18 billion.
- High-income taxpayers (annual gross income of more than $75,000) received 60 percent of tax credits in programs for energy-efficiency, residential solar power, and hybrid vehicles.
- High-income taxpayers (annual gross income of more than $75,000) received 90 percent of tax credits in programs for electric cars.
Distributional patterns indicate that higher-income taxpayers are more likely to claim credits and claim them for larger amounts. Additionally, many energy tax credits are not available to lower-income taxpayers. For example, the Residential Energy Efficient Property Credit (REEPC) offers a 30 percent credit for all installed residential solar panels, solar water heating systems and fuel cells up to a maximum of $2,000. This generous tax credit is not an option for renters, only for property owners.
When considering future incentives to U.S. taxpayers for eco-friendly investments, policy makers would do well to turn their support away from tax credits over to a carbon tax which would be equally distributed across all income brackets.
Source: Severin Borenstein and Lucas Davis, "The Distributional Effects of U.S. Clean Energy Tax Credits," Energy Institute at HAAS, July 2015.
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