Electric cars

We Should Eliminate Federal Electric Vehicle Subsidies for Rich People

79 percent of the EV tax credits go to households with adjusted gross incomes of $100,000 or higher



The Federal government currently offers a $7,500 tax credit to purchasers of electric vehicles (EV). A Pacific Research Institute study published earlier this year reported that 78.7 percent of the EV tax credits were received by households with an adjusted gross income (AGI) of $100,000 or higher, and that more than half went to households with an AGI in excess of $200,000. Basically, the federal government is subsidizing rich people to indulge their tastes in driving expensive electric vehicles.

The Feds did, however, limit the these tax outlays by putting a cap of 200,000 vehicles that can be subsidized by each manufacturer. EVs manufactured by Tesla and General Motors are on the verge of no longer qualifying for tax credits since those companies will likely exceed their 200,000 vehicle thresholds this year. This means that the vehicles from EV manufacturers who have not yet crossed that threshold will have a subsidized relative price advantage over Tesla and GM.

Members of Congress worried that crossing the 200,000 vehicle threshold will harm EV "first mover" manufacturers introduced legislation in July that would eliminate the 200,000 car threshold. In addition, the proposed legislation would change the tax credit to a direct rebate available for the next ten years instead of requiring EV buyers to wait for their tax refunds. Some 36 electric utilities eager to sell more power to EV owners have also urged Congress to remove the manufacturer cap.

Today, a consortium of free market think tanks have sent a letter to Ways and Means Committee Chair Rep. Kevin Brady (R–Tex.) strongly objecting to "any effort to expand the current electric vehicle tax in any way." The letter points out that if companies like Tesla and GM are "concerned about uneven tax credit treatment, then the answer is to eliminate the tax credit entirely, as the House proposed in last year's tax bill."

This is exactly the policy urged in Reason last June by Mercatus Institute economist Veronique de Rugy. "Congress failed to fully utilize the opportunity afforded by last year's tax reform to end the electric vehicle tax credit and other programs that force all taxpayers to subsidize the activities of a tiny few," she noted. "At a minimum, Congress should avoid compounding that error and resist the call of special interests to expand electric vehicle subsidies."

It is well past time for Congress to eliminate federal EV subsidies for the rich.