Electric Vehicle Windfall Still in Big Spending Bill

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Congress’ big spending bill, now called the Build Back Better Act, is evolving from truly terrible to somewhat less terrible. On energy, the highly punitive sticks like the Clean Energy Performance Program (CEPP) have mostly been dropped, but a half a trillion dollars’ worth of carrots remain, and those are bad enough. Under these provisions, all taxpayers will have to subsidize wealth transfers to individuals and businesses who buy and use politically favored energy sources and products, most of which were chosen to pursue a climate agenda. Perhaps worst of all are the incentives applicable to electric vehicles (EVs).

The biggest change is that the already generous tax credit of up to $7,500 for the purchase of an electric vehicle will increase to as much as $12,500. However, the extra $5,000 has some new and controversial strings attached. Starting in 2027, it only applies to vehicles made with unionized labor in the United States. This, of course, greatly favors the big three (Ford, General Motors, and Stellantis, which owns Chrysler). Tesla and other nonunion automakers (including ones where the workers rejected unionization attempts) and EVs with too much foreign-made content would receive less generous treatment.

The bill would also lift the current restriction for the tax credits to only apply to the first 200,000 EVs from any particular maker, a cap that Tesla and GM have already reached and others are nearing. That puts an end to the myth that EV makers were only getting temporary “infant industry” treatment.

The bill would also make the tax credits refundable and transferrable. Thus, instead of EV buyers not getting the benefit until they file their tax returns (and potentially not getting it at all if they have too little tax liability to be offset) they can get the full amount immediately and directly from the dealer in in the form of a lower purchase price.

The bill also seeks to address the fairness issues, but those provisions would have little impact. In response to complaints that EVs are mostly purchased by wealthy households, the new and expanded tax credits would phase down for individuals with incomes above $400,000 per year, or $800,000 if married filing jointly. They also don’t apply to vehicles priced above $64,000 for vans, $69,000 for SUVs, $74,000 for pickups, and $55,000 for any others. In effect, EV tax credits are still available for the rich but not for the very rich or for uber-luxury EVs.

There is also up to $4,000 in additional tax credits for the purchase of a used EV.

Meanwhile, the sticker price for gasoline and diesel cars and trucks, the kind well over 90 percent of new vehicle buyers prefer, continues to rise. In 2021, the averageprice of a new vehicle reached $40,000. Regulatory costs are a significant part of the price increase, and they could get worse under proposed new fuel economy standards. In other words, the carrots for EVs would increase under this bill at the same time the regulatory sticks for gasoline and diesel vehicles also go up.