There is a constant tension between consumers’ desires to buy green products and their willingness to pay for them. Electric vehicles typify this struggle because, even when a significant portion of their cost is covered by government subsidies or tax credits, they still demand a higher price than their internal combustion engine competitors.
The Mackinac Center has long held to the economic truism that there will always be a company willing to meet consumer demand for a competitively priced and technically feasible product. But an influential throng of subsidy-happy elected officials and subsidy-hungryautomobile manufacturers and utilities, along with a phalanx of overbearing green activists and advocates in the media, have seen differently. They’ve been more than willing to bend these market rules to favor their preferred products and technologies.
As the coalition letter notes, the original move to establish the EV tax credit was wrongheaded. But, thankfully, the sponsors of that 2007 legislation at least had the foresight to limit it to the first 200,000 vehicles produced by a company. As Sen. Orrin Hatch, who sponsored the original bill, noted, the tax credits were intended as a temporary means of “get[ting] these products over the initial stage of production.” Having met that goal, these special favors should now end. Therefore, the coalition letter requests that officials consider six key issues before they approve any additional federal favors for this sector of the automobile industry.
The voting public dislikes the idea of special favors going to EV manufacturers and buyers. Fully 67 percent of voters do not want tax policy to favor EV purchases, and 72 percent don’t trust the federal government to decide what vehicles should receive special tax favors.
EV tax credits are a regressive tax policy that bestows benefits almost wholly on upper-middle class or wealthy drivers. Congressional Research Service studies indicate that 78 percent of EV tax credits were given to homes making six figures or more.
EV subsidies distinctly favor the state of California over the rest of the country. In 2018, California made up 16 percent of the nation’s population, but Californians purchased 48 percent of the EVs sold in the U.S. With a $7,500 federal tax credit going to each car purchased, that means that drivers elsewhere paid at least a portion of their taxes to help encourage California drivers to purchase EVs.
EVs are not necessarily a cleaner form of transportation. A Manhattan Institute study described how new, highly efficient internal combustion engine vehicles using low-sulfur gasoline already emit very little pollution. At the same time, a recent study from Germany shows that — depending on how electricity is produced — the amount of CO2 emissions from an EV can be similar to or higher than the amount from diesel vehicles.
The EV tax credit is a net economic harm to consumers. NERA Economic Consultants reported that extending the EV tax credit in perpetuity would reduce the personal income of all U.S. households by $7 billion in 2020 and $12 billion in 2035. A just published Ernst & Young report on the cost of the Driving America Forward Act puts the price at $6.3 billion in the first 5 years and almost $16 billion in the first decade.
A renewed EV tax credit is fiscally reckless. The initial tax credit proposal was limited by Congress to control its costs. Calls for an expanded tax credit remove that restraint. The tax credit always was an unnecessary favor granted to the EV industry and EV buyers; extending it provides too few benefits for the costs it imposes.
The electric vehicle market has already relied on the American taxpayer for a decade-long push-start. Renewed demands by automobile manufacturers and EV advocates for more preferential support are simply irresponsible. It is time for these targeted favors to end and for these technologies to compete on a level and unsubsidized playing field.
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