Exorbitant Tax Incentives for Electric Vehicles to Be Voted on in House Ways and Means Committee

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If electric vehicles (EVs) are to be judged by the amount of tax incentives needed to induce Americans to choose them, the latest provisions from the House Ways and Means Committee are a scathing indictment of the technology. These measures both expand the already generous existing provisions and tilt the playing field in favor of American and union-made EVs and batteries. The Committee may vote as soon as Tuesday to add these provisions to the $3.5 trillion-dollar reconciliation package.

In past years, EVs were eligible for up to $7,500 in federal tax credits (California and copycat states kick in thousands more), but only for the first 200,000 such vehicles for each maker, a milestone already surpassed by both Tesla and General Motors. The new measures boost that number to $12,500 per vehicle and lift the cap entirely. However, the extra tax credit money above $7,500 only applies towards American and union-made vehicles—a big problem for companies like Toyota and Honda and Tesla that either build some vehicles abroad or employ American workers who have chosen not to unionize.

To place things in perspective, federal tax credits potentially reaching $12,500 and going to mostly well-to-do households are not much less than the entire cost of the cheapest new gasoline-powered cars—the only new vehicle option within the price range of many people.

These incentives go to buyers of new EVs, but in a novel twist, the bill provides an additional round to tax credits for the used EV market. Anyone who purchases an EV from the original owner is eligible for up to $2,500. This raises many questions about sham sales, but, like so much else going into the reconciliation package, proponents have done a very poor job thinking through the implications.

In response to criticisms that such EV incentives constitute tax breaks for the wealthy—fully 79 percent of EV buyers have  average incomes in the six figures—the provisions are phased out for the very richest Americans and don’t apply to luxury vehicles. However, the disqualifications kick in only for single filers with annual incomes over $400,000 and joint filers above $800,000, and only for cars above $54,000, SUVs over $69,000, and trucks over $74,000. This could lead to issues with the Senate, which last month passed a non-binding resolution prohibiting EV incentives for households earning above $100,000 a year and vehicles costing over $40,000.

Proponents estimate the costs of these measures at between $33 and $34 billion dollars over 10 years, but it could be higher, since the 200,000 per maker cap is lifted, and thus there is no limit to the number of EVs that are eligible. Similarly costly Senate provisions have already passed out of the Senate Finance Committee last May.

Who pays for all of this? In reality, at least some of the subsidies for EVs end up as added costs for conventional gasoline or diesel-powered vehicles—which working-class families overwhelmingly prefer. That is part of the reason new conventional vehicle prices have been rising – reaching $40,000 in 2021 by one estimate, and will likely continue to do so.