Electric Vehicle Tax Credit: Nothing But Cronyism

Though a far cry from ending capitalism, as protestors on the streets of Washington, D.C. espoused Monday during their attempt to shut down the city in the name of climate change, Congress is eyeing an expansion of market manipulation by further subsidizing electric vehicles.

In any sense, government picking winners and losers in the economy is poor policy, because it prevents the market from naturally increasing competition, lowering costs, and producing better products. In the case of electric vehicles (EVs), the federal government has for far too long meddled in the market, allowing EV buyers an up-to $7,500 tax credit until the manufacturer they are buying from sells 200,000 qualifying vehicles.

The EV tax credit was put in place in 2010, with the goal of spurring sales of electric vehicles. As the Department of Energy notes, “Currently, no manufacturers have been phased out yet.” However, after nearly a decade, some manufacturers are in the phase-out period, including Tesla and General Motors.

What may have begun as an honest attempt at reducing carbon emissions quickly turned to a crony scheme, and that is what any extension of the EV tax credit would represent. Some legislators wish to lift the cap on sold cars entirely and others wish to substantially raise the cap. Discussions also continue around the potential modification of the tax credit amount itself. Any modification of the tax credit, though, only perpetuates cronyism (unless it is full repeal).

While the intention of the tax credit was to make EVs more affordable for average Americans, this has not turned out to be the case — or even close to it. A study from the Pacific Research Institute found that nearly 80 percent of those benefiting from the EV tax credit are from households that have incomes above $100,000. Not only is the EV tax credit an obvious giveaway to the wealthy, then, but it also falls on the backs of those average Americans it was designed to benefit to foot the bill for the giveaway.

Politicians should also be wary of supporting such obviously regressive wealth redistribution. A recent survey from the American Energy Alliance revealed that fewer than 20 percent of Americans trust the federal government to make decisions about what kinds of cars should be subsidized or mandated, and that conversely, about 75 percent of Americans believe consumers should not pay for other consumers’ electric vehicle purchases. In short, the EV tax credit is extremely unpopular among ordinary Americans, gaining support only from the select few that it benefits and those automakers who stand to benefit from selling to those wealthy consumers.

Beyond this, however, the environmental benefits of EVs are more than questionable. As the World Economic Forum explains, “raw materials needed for batteries are extracted at a high human and environmental toll. This includes, for example, child labour, health and safety hazards in informal work, poverty and pollution.”

The most likely path forward for EV tax credit expansion is something similar to legislation introduced by Sens. Debbie Stabenow (D-Mich.), Lamar Alexander (R-Tenn.) Gary Peters (D-Mich.), and Susan Collins (R-Maine) as well as Rep. Dan Kildee (D-Mich.). Their proposal would raise the cap from 200,000 cars to 600,000 cars, allowing decades more of cronyism. As Steve Forbes put it recently, “take money away from hard-working families and redistribute it to a small group of affluent people who don’t need tax breaks to buy or operate a vehicle.”

Instead of expanding a regressive tax credit that does little to nothing for the environment, Congress should work toward leveling the tax code to treat all Americans across the country and all products across industries equally. This would mean repealing the EV tax credit.

Especially for Republicans who are falling prey to this scheme, the facts stand strong against expansion. Must-pass bills like the one that such a tax credit expansion is likely to be attached to — likely a massive government funding bill — are often bad enough. Including a crony EV tax credit expansion would only make the bad worse.