Congress should end electric car subsidies, not expand them

In 2008, in an effort to coax more Americans into buying “green” vehicles, the federal government instituted the electric vehicle (EV) tax credit.

By law, the EV tax credit begins to phase out – and eventually expires – once a manufacturer has sold 200,000 qualifying electric vehicles. Tesla has already reached this threshold, and General Motors is expected to cross it before the end of 2018. Understandably, these large electric vehicle makers are fighting to maintain this government handout, and some lawmakers have proposed removing the cap on the EV tax credit altogether.

Not only should Congress reject proposals to uncap the EV tax credit, lawmakers would do well to repeal it entirely.

The EV tax credit is anti-competitive and prevents the free market from operating correctly. By favoring certain vehicles through the tax code, the federal government picks winners and losers.{mosads}

Thanks to the EV tax credit, car buyers can qualify for up to $7,500 in government subsidies when buying an electric vehicle. In 2016, 57,066 individual taxpayers claimed $375 million in EV tax credits. These subsidies overwhelmingly benefit the wealthy. Tesla buyers, for example, had an average household income of $293,200 in 2013. A study in 2015 found that electric Ford Focus buyers had an average household income of $199,000. By contrast, the median household income in the U.S. in 2015 was $56,516.

Overall, the top 20 percent of income earners receive about 90 percent of EV tax credits. Additionally, data from 2014 indicates that over 99 percent of total EV tax credits went to households with an adjusted gross income above $50,000.

While most beneficiaries of electric cars and the infrastructure needed to support them are high-income individuals, the costs of these subsidies are disproportionately borne by lower-income consumers, for whom the cost of owning an electric car is prohibitive.

This subsidy for the rich comes with a staggering price tag. Currently, the EV tax credit, according to nonpartisan analysts, will cost $7.5 billion from 2018 to 2022. The cost of uncapping the EV tax credit and making it permanent would be exorbitant.

Despite billions of dollars spent on tax credits and other incentive programs, consumers aren’t buying electric vehicles. Fewer than 200,000 electric cars were sold in the U.S. last year, barely 1 percent of the 17.25 million total automobile sales. Consumers’ reticence to purchase electric vehicles might be due to sticker shock or the fact that the 20-year cost of ownership of an electric vehicle runs $20,000 to $32,000 more than a gas-fueled vehicle. Whatever the reason, the massive, taxpayer-supported investment in electric vehicles simply isn’t working.

Removing the cap on the EV tax credit would entrench an unfair, ineffective policy. Instead of magnifying the EV tax credit’s harmful effects, Congress should repeal it. Senator John Barrasso (R-WY) recently introduced the Fairness for Every Driver Act to do just that. It’s time to level the playing field between all vehicle types and end the government favoritism that is distorting the automobile market at the expense of taxpayers.

Liam Sigaud works on economic policy and research for the American Consumer Institute, a nonprofit educational and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org.