In the newly introduced Growing Renewable Energy and Efficiency Now Act (GREEN) of 2021, members of Congress are proposing a problematic expansion of the Electric Vehicle (EV) Credit.
President George W. Bush first introduced the EV tax credit in 2008, with a cap of $3,400 per car, and limited the credit to the first 60,000 cars per manufacturer. In 2009, under President Barack Obama, the cap was raised to $7,500 per car and the credit was expanded to the first 200,000 cars per manufacturer. After 200,000 vehicles, the credit phases out by reducing the credit per car over six quarters until it is zero.
As of 2021, Tesla and General Motors are the only car manufacturers that have surpassed the credit ceiling. According to the IRS, no car manufacturers besides Tesla and General Motors have even started to phase out their credit.
In the GREEN Act of 2021, lawmakers propose to expand the credit to 400,000 cars per manufacturer, but reduce the per-car credit ceiling to $7,000. According to the bill, “For manufacturers that pass the 200,000-vehicle threshold before the enactment of this bill, the number of vehicles sold in between 200,000 and those sold on the date of enactment are excluded to determine when the 600,000-vehicle threshold is reached.” So, Tesla and General Motors would start at 200,000 cars once the bill is signed into law even if they surpassed the threshold in 2018 - which is almost three years ago.
A major problem with expanding the EV credit is that it primarily benefits wealthy consumers, even though EVs have become more affordable in recent years. According to the Congressional Research Service, almost 80 percent of EV credits have been claimed by taxpayers with an average income of over $100,000, and seven percent of credits have been claimed by taxpayers with an average income of more than $1 million.
Taxpayers would be best served if Congress allowed the EV tax credit to expire. But if it intends to expand it, policymakers should, at a minimum, target only lower-income buyers by putting an income cap on consumers who want to use the credit. For example, California started a Clean Vehicle Rebate program which caps eligibility at $150,000 in income for single filers and $300,000 for joint filers. This program limits the subsidy of very expensive electric vehicles like Tesla to consumers who cannot afford these vehicles on their own, rather than subsidizing wealthy individuals in their purchase of a new car.
But in the GREEN Act of 2021, there is no income cap and the credit expansion favors Tesla and GM because they are the only manufacturers to have surpassed the credit threshold. Congress should not expand the EV credit -- especially in a way that would primarily benefit high-income households.