EV tax credits ‘on the table’ as Democrats try reviving parts of Build Back Better

Sen. Joe Manchin (D-W.Va.) recently threw another wrench into the Biden administration’s economic agenda by saying it was “ludicrous” to pursue tax credits for electric vehicles (EVs), which would make up half of all cars on the road by 2030 if White House economic planners get their way.

But Democratic lawmakers looking to revive elements of President Biden’s Build Back Better plan say that EV tax credits are still under consideration as part of broader legislation to make the economy more environmentally friendly.

“There’s a lot of promise with EV tax credits, and I believe it’s still on the table,” Rep. Haley Stevens (D-Mich.) said in an interview.

“My vision on this would be to have a strong utilization of our tax code to incentivize and bolster and support R&D initiatives,” she added. “I don’t think it’s all in the tax code, but there’s certainly a lot of potential.”

Under the House-passed version of the Biden administration’s Build Back Better Act, which never made it to a vote by the Senate thanks in large part to Manchin, a $7,500 tax rebate for consumers who purchased EVs would have been bumped up to a $12,500 rebate, provided vehicles were made with union labor and domestic component parts.

Rep. Raul Ruiz (D-Calif.) thought the bumped-up credit with the union-labor provision was worth it.

A statement from his office said he “believes expanding our use of affordable electric vehicles with batteries that are made in America with American materials and union labor is integral to our transition to a clean energy future.

The union labor stipulation ruffled the feathers of Tesla CEO Elon Musk, whose factories aren’t unionized and who referred to Biden as a “UAW [United Auto Workers] sock puppet” on Twitter, a platform he has since announced a plan to buy.

The EV tax credit is still alive in the eyes of other Democratic lawmakers, as well, including Rep. John Larson (Conn.), member of the chief tax-writing committee in the House.

“Rising gas prices due to the Russian invasion of Ukraine crystallize the urgent need to end our dependency on fossil fuels,” Larson said. “To do that, electric vehicles can’t just be for the wealthy. That’s why I strongly support electric vehicle tax credits to bring the cost down and make this technology available to all Americans.”

Rep. Shontel Brown (D-Ohio) concurred.

“Now is the time for Congress to drive the future of transportation,” she said in a statement.

While EV tax credits may be contentious in Congress, the auto industry generally favors any sort of policy designed to boost its sales.

“Consumer incentives are very important still at this stage in the game, while we’re still at very low levels of EV penetration, right at 4 percent,” John Bozzella, head of auto industry trade association Alliance for Automotive Innovation, said during a panel presentation earlier this year.

“Eventually you’ll see that type of support for those sales phase out as we get to much higher levels of EV penetration, but they’re important now,” he said.

Republicans are generally unenthused by EV tax credits and consistently voice support for the established industrial practices of the fossil fuel industry and even advocate for its expansion, despite a near-global consensus on the need to curb carbon emissions and reduce reliance on fossil fuels.

“Given that only the richest 1 percent of Americans are driving electric vehicles, the committee should be focused on more pressing issues,” Rep. Fred Upton (R-Mich.) told the House energy subcommittee in March.

At a recent meeting, he said, “America is the world’s leading producer of oil and gas, and we should act like it. We can produce significantly more energy than we do today and unleash the vast resources under our feet.”

In March, United Nations Environment Program chief Inger Andersen said that “urgent action is needed — on financing, adapting to climate impacts, and cutting emissions, especially by the big emitters. Making the shift now means phasing out coal; putting a price on carbon; ending fossil fuel subsidies; and ensuring a just transition to renewables.”

While EV tax credits may eventually cut back on the carbon output of the transportation sector in the U.S. by getting more electric vehicles on the road, analysts say they’re not nearly as powerful a tool as a carbon tax.

“There’s still a very long way to go. It would be a lot more efficient, by any measure, to use a carbon tax to incentivize electric vehicle purchases,” Thornton Matheson, a senior fellow at the Tax Policy Center, a Washington think tank, said in an interview. “In other words, instead of making the electric vehicles cheaper, make fuel more expensive.”

Sen. Ron Wyden (D-Ore.), who introduced a law to overhaul the federal energy tax code last year with emissions-based rules that favor low-carbon electricity and transportation, said talks on environmental legislation and carbon taxes are not where they need to be.

“There isn’t anything even in the pipeline that plausibly reduces carbon emissions” other than the Clean Energy for America – Wyden’s tax package, he said.

Manchin’s argument against EV credits was essentially that it doesn’t make sense for the government to subsidize purchases of electric vehicles when demand exceeds supply, since people don’t need to be encouraged to buy something they already want.

“In the short run, Manchin is right,” Howard Gleckman of the Tax Policy Center wrote in a brief. “But in the long run his reasoning is exactly the justification for a carbon tax, though he might not want to admit it. If the goal is to use government policy to encourage manufacturers to dramatically increase the supply of EVs, a carbon tax would be much more efficient than an EV credit.”

Revenue proposals from the Treasury Department released in March did include a bid to eliminate certain fossil fuel tax preferences in the energy sector, including eliminating a credit for nearly depleted oil wells and a write-off for exploration and development costs.

Updated 11:12 a.m.