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Free Minds & Free Markets

Extending the Electric Vehicle Tax Credit Undermines Tax Reform

Real reform requires simplifying the tax code.

Tax complexity is a breeding ground for government corruption. It's much easier to add new corporate handouts to a tax code that's already overrun with favoritism, and it's simpler for politicians to justify adding narrowly targeted benefits when the practice is already common. Businesses, in turn, have an incentive to spend more time and resources lobbying the government than satisfying customers.

That's why simplification of the tax code was one of the objectives of tax reform. The Tax Cuts and Jobs Act brought a larger standard deduction that means far fewer taxpayers will itemize. It also eliminated numerous deductions and the capping of others. Yet many special provisions and exemptions remain. Among them is the tax credit that comes with the purchase of an electric vehicle.

The electric vehicle (EV) tax credit is valued from $2,500 up to $7,500 depending on the vehicle specifications. As the Tax Foundation has shown, the credit is disproportionately claimed by higher-income households. Including its various phaseouts, it would cost $7.5 billion in federal revenue through 2022, says Congress's Joint Committee on Taxation.

The distortions and questionable handout to top income earners made the EV tax credit a prime target for elimination, but ultimately, it survived. The current credit, however, will end all on its own thanks to a phaseout that it triggers for a given manufacturer once it hits 200,000 in total EV sales. Tesla has already crossed the threshold, and GM is expected to do so before the end of the year.

But rather than let the benefit expire for these manufacturers and simplify the tax code even further, some Republicans are looking to extend the credit well into the future. Republican Sen. Dean Heller—whose home state of Nevada hosts Tesla's Gigafactory 1—introduced a bill with a companion bill from three Republicans in the House to lift the 200,000-vehicle cap and extend the tax credit until 2022. But don't let that date fool you. If the credit isn't allowed to die today, there's little reason to believe it would be allowed to do so in the future.

Once 2022 rolls around, it's more than likely that the EV tax credit will be included in the annual "tax extenders" bill, where lawmakers renew for the next year what is mostly a collection of handouts that have passed their planned sunset dates, some of which occurred long ago.

The extender ritual is explained by the phenomenon of concentrated benefits and dispersed costs. That's where the recipients of government handouts have a greater incentive to fight for the preservation of their benefits than the larger number of taxpayers, whose costs are spread thinner, have to resist them. And the longer the EV tax credit exists, the more powerful its constituency becomes.

Seven Senate Democrats would go even further than Sen. Heller and have proposed legislation that would increase the cap, extend the credit until 2028, and allow unused portions to be carried forward up to five years.

Yet a third option, the Fairness for Every Driver Act introduced by Republican Sen. John Barrasso of Wyoming, would eliminate the credit immediately, while also asking electric vehicle owners to pay a user fee roughly matching the gas tax that's used to fund the Highway Trust Fund. Since electric vehicles use and contribute to the wear and tear of highways, too, the absence of such a fee amounts to its own form of favoritism. Whether or not the Highway Trust Fund is the best approach to infrastructure maintenance is another question, but so long as it exists and is funded by gas taxes, owners of all types of vehicles should pay proportionally to their road usage.

This isn't the tale of "Goldilocks and the Three Bears," where a middle-of-the-road option between the three proposals is "just right." Barrasso's proposal makes the tax code simpler and less distortionary, making it the most economically sound. Returning to strong financial footing requires real alternatives to our current system—not just options that are only slightly less bad.

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  • loveconstitution1789||

    ax complexity...

    How complex are axes?

  • Conchfritters||

    You never saw a +2 ax, +5 vs undead? Rare I know - I knew an 8th level halfling once, who snuck in a lich's lair and lifted one while the lich was sitting on the shitter reading a magazine.

  • Rat on a train||

    So what was Ginsburg reading?

  • Last of the Shitlords||

    Worker's World Daily? The Village Voice? Mother Jones? Parade Magazine?

  • Frank White||

    Ironically, the price of EVs are getting to the point where they are affordable to middle class and low income folks just as the tax credit is expiring. I've got to wonder if the "Goldilocks" solution for Trump is to extend it for EVs as long as they're made in the USA? Sneaky way to give Tesla a subsidy while pushing "America First."

  • Gilbert Martin||

    EV's have a range and recharging time problem that has yet to be solved.

    Unless EV's become EXACTLY equally as convenient as ICE vehicles to operate, they will not gain significant market share.

    They are most toys for the well off who can afford to have another ICE car that is ready to go at all times and for long trips.

  • Frank White||

    Recharging at home over 7-8 hours (you know, like while you sleep), a 15-45 minute recharge wile on the road (Tesla supercharger only) and 300 mile range between charges is within most people's use case.

  • Gilbert Martin||

    And what if you suddenly need to go somewhere in the middle of the night?

    15-45 minute recharge on the road - for Tesla supercharger only?

    How many recharging stations are there in the country? And what makes you think that no one will ever be in line ahead of you to get their car recharged. If someone else gets there right ahead of you, your wait time just doubled vs waiting 5 minutes for someone to fill up at a gas pump and get out of your way if you're next in line there.

    As I said, unless EV's become EXACTLY equally as convenient as ICE's they aren't going to gain any significant market share. Unless government tries to force them to buy them by outlawing ICE cars.

  • Echo Chamber||

    this guy gets it

  • Mcgoo95||

    "this guy gets it." Umm no he doesn't. His argument is essentially the same as "what if you are in a bank that is being robbed and your cellphone battery dies and you can't call the cops?" Also, most owners charge their cars at home when they are sleeping. It's possible, but highly unlikely. Not in favor of the tax incentives, but if you ever drove a Tesla, you would realize that they are probably the future. They outperform ICE cars in every metric and are fun to drive. They only have a slight disadvantage on cross country travel.

  • Last of the Shitlords||

    EVs are still something of a novelty item. Unfortunately, a novelty that our government, through incentives and regulation, is forcing automakers to pursue to the exclusion of alternative technology.

  • Mcgoo95||

    What alternative technology are you referring to?

  • Last of the Shitlords||

    Hydraulic compression tech,, biofuels, hydrogen, etc..

  • Mcgoo95||

    I would love to see a car made with a hydraulic motor/accumulator but I doubt it would have enough energy density to be practical. A hybrid electric/hydraulic (or hydraulic/combustion) system could maybe be interesting. I'm also pretty sure the DoE is funding research into biofuels, fuelcells etc. Battery technology is advancing fast enough that I would be surprised if any of these other alternatives ever catch up at this point. I would still like to see a Tesla with fuel cell though.

  • ||

    Recharging at home over 7-8 hours (you know, like while you sleep), a 15-45 minute recharge wile on the road (Tesla supercharger only) and 300 mile range between charges is within most people's use case.

    No it's not.

    Two vehicles with a 300+ mi. range, one or both costing less than $30K, with 5 min. recharges available on every corner is most people's use case.

    If you had an ICE car that performed exactly the same way as an EV, no one would buy it. Sub 3s 0-60s are impressive, especially for the price point, but exceedingly few driver's use case requires (or even allows) them and the trade off of night-long fuelings and special gas stations relegates it more to the 'clunker' side of things.

  • NoVaNick||

    And what do you do when there is a power failure for several days, like with hurricanes?

  • Mcgoo95||

    Move from the coast? Buy a generator?

  • Mcgoo95||

    Also most cars will hold a charge for much longer than two days and you could just drive somewhere that has power.

  • Cyto||

    Plug-in hybrid, FTW!

    I was looking at a year-old Kia plug-in hybrid. Goes far enough on a charge for my daily driving, but can go 500 miles on a tank of gas at about 45+ mpg.

    Available used for $19k asking price, with a 100k miles power train warranty (has 11k, miles now).

    Pretty economical in price - and this was a lexus dealer. Haven't looked around to see if there is a direct-sale discount. They are pretty uncommon, so finding one might be a challenge.

  • ||

    Even then, setting the ICE aside, you're (likely) talking about a 1.6L I-4 and Kia makes/made one that gets 450 mi. on a single tank for $17K new.

    Not saying it's clearly worse, but the 'win' is hardly decisive.

  • ||

    Sorry, setting the electric motor aside.

  • Last of the Shitlords||

    Are you talking about the Niro or the Optima?

  • My Dog Bites Better Than Yours||

    Unfortunately, Tesla is suffering from arrogance (and maybe greed). Trying to "go it alone" on the power stations was an incredibly stupid idea in a long string of TESLA stupidity. Tesla Superchargers should be in every large EXXON or ARCO stations. Before long, they would start showing up in every 7-11.

  • Mcgoo95||

    "Trying to "go it alone" on the power stations was an incredibly stupid idea in a long string of TESLA stupidity."

    In terms of revenue, the Tesla model 3 was the best selling car for the past several months and there are no signs of slowing. I think a large part of the population of this country would agree with your sentiments. However, I believe they are wrong. Very wrong.

  • Last of the Shitlords||

    Is the quantity of rare earth elements sufficient to manufacture the okwertrainf romelectric vehicles if they gain truly significant market share?

  • Mcgoo95||

    There are many alternatives to Li ion. Dual carbon or graphite batteries exist today and are being refined.

  • Mcgoo95||

    Seems carbon or graphite anode/cathode batteries still use lithium (my bad). However, lithium is not a rare earth metal and is quite abundant. Furthermore, lithium is not a consumable and there is relatively little of the metal in the batteries. Once EVs displace ICE vehicles, there will (most likely) be no problem with scarcity of raw materials.

  • Enjoy Every Sandwich||

    Come on now, tax credits for The Woke are different. We need those. You can't expect some enlightened member of #Resistance to pay full price!

  • Earth Skeptic||

    Virtue (signaling) is not cheap!

  • Jerryskids||

    Sorry, I don't know what to think about extending the EV subsidy until Trump tells me what to think about it.

  • Cyto||

    Are there "Trump says so" people out there?

    I know there are loads of "yeah, but I don't care" Trump supporters.

  • Last of the Shitlords||

    It's a bad idea. Government needs to quit pushing electric vehicles and let the market work itself out. There are alternatives.

  • Gilbert Martin||

    And while we're on the subject of vehicles, the rent seeking giveaway to the Ethanol industry that mandates refiners blend that product in the fuel the sell should be eliminated as well.

  • Adans smith||

    Bingo + 1

  • NoVaNick||

    If they did that, the GOP would lose Iowa, Kansas, and Nebraska

  • Last of the Shitlords||

    Ethanol is a net loss to FE and doesn't do shit for emissions on newer vehicles.

  • Let freedom ring||

    So long as Veronique remains ignorant of the true nature of the US Individual income tax ( I.e. a classical liberal public office duty), she will continue to write articles that begin with the wrong premise.
    Since the tax is an excise tax laid on profits gained from a federal government privilege, and not a tax on "everything that comes in" earned by ordinary Americans whose gross income is from occupations of common right, these tax credits apply only to the subset of incomes subject to the tax. According to the well known principle that he who pays the piper calls the tune, the federal government can offer its employees and others who profit from its privileges deductions if they to buy electric cars, or penalties if the do not purchase certain health insurance, etc.
    Pete Hendrickson will be in Bakersfield November 10 to explain this, Will Reason cover hus seminar event? Www.losthorizons.com

  • Robes Pierre||

    I appreciate the tax break every breath I take. I wish everyone would take advantage of it. It's one of the very, very few tax breaks which benefit people other than the person who receives it. But of course anything which in any way threatens the oil industry should be individually targeted for elimination. Can't have that politically connected, special interest inconvenienced.

  • Last of the Shitlords||

    Of course you're for it, since it's completely fucking horrible. And it isn't propping up the oil industry. Quite the opposite. But you don't know shit about cars, emissions, the oil industry, or any of this, do you?

    All you're doing is helping rack up more federal debt to push an immature technology that is actually worse on emissions, costly, and burdensome on our power grid infrastructure.

  • Robes Pierre||

    Your English is almost passable. When did you first get assigned to trolling American sites?

  • Last of the Shitlords||

    Fuck you AmSoc. I have easily ten times your brain power. Best your dumb ass just learns to obey.

    Also, did you pay your fucking mortgage yet?

  • Duelles||

    I do believe you are correct in describing the tax credit as "horrible."Only a non reasoning, unthinking moron could find a way to disagree.

  • renewableguy||

    In the grand old words of socialism, society needs to change and change fast on how it uses its energy. The authors view that electric cars should fit into his favorite tax form is just a little wobbly at getting the job done that we need to do. Electrification of all energy based in 100% clean energy.

    Work needs to get done and there are people standing in the way to make the world fit into their mold. Stop pontificating and get to work.

  • Duelles||

    Thanks for paying for my 30% tax credit on my solar panels. What industry is viable when they need that kind of subsidy? Politicians are thieves stealing from the poor and giving to the rich. The 1% has nothing to with the 99%ers gripes. Idiots live among us.

  • AD-RtR/OS!||

    "If it moves, tax it;
    If it continues to move, regulate it;
    if it stops moving, subsidize it."

    If electric vehicles are such a good idea, there should be no need for government to subsidize them.

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