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SMI: Missouri’s Green Tax Rebates a Wasteful Use of State Funds

April 21st, 2010 by mopns · No Comments

Show-Me-Institute research analyst Christine Harbin pens an op-ed about Missouri’s green sales tax holiday and rebate program. Harbin argues that instead of creating new economic activity, programs that offer rebates on specific products like appliances and cars merely distort the market.

By Christine Harbin

On April 19, Missouri began a weeklong program of providing $5.6 million in rebates and eliminating the state sales tax on Energy Star appliances. This is a wasteful use of state funds that also entails significant unintended consequences.

Instead of creating new economic activity, programs that offer rebates on specific products like appliances and cars merely distort the market. Such transactions would occur anyway, in the future, independent of a rebate in the present, because consumers naturally upgrade to new machines as their older models begin to wear down or break. Additionally, the promise of increased energy savings is already a significant incentive.

The intended environmental impact of such rebate programs is negated by the way they are usually constructed. The subsidy creates an incentive to destroy operational appliances and build new machines to replace them. This destroys wealth in the Missouri economy, because the resources used to create these new appliances could have been used elsewhere. Acquiring a more fuel-efficient new appliance could also encourage the purchaser to wash dishes and laundry more frequently than before, which means that the overall decrease in energy usage may be much smaller than anticipated — or could even increase. If usage does drop as a result of sanctioned purchases, however, the reduction in overall Missouri energy usage will still be minimal at best unless every Missouri resident purchases a new appliance during the week that rebates are offered. Read more…

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