Do households earning $200,000 per year need taxpayer assistance to purchase electric cars? Congress seems to think so.
Since 2008, the electric vehicle (EV) tax credit has given electric car buyers up to a $7,500 tax credit when purchasing a qualifying vehicle. Under current law, the credit exists until a manufacturer sells its 200,000th car, after which the credit is gradually phased out over six quarters and ultimately expires. Tesla has reached this threshold and credits for Tesla vehicles will begin to phase out in 2019. General Motors will likely cross the phase-out threshold before the end of 2018, and Nissan is not far behind.
Unsurprisingly, these companies are lobbying Congress to lift the cap and preserve this subsidy. But instead of raising the cap on the EV tax credit, lawmakers should do away with it entirely.
Since electric vehicle owners tend to have much higher incomes than other consumers and, even among electric vehicle owners, the highest-income households receive the bulk of these government subsidies. One study, for instance, showed that $6 of every $10 of electric vehicle subsidies went to households in the top fifth of income earners — specifically, those making more than $200,000 per year – while only 10 percent went to households earning less than $75,000 per year. By contrast, during that year, the median household income in the U.S. was $53,889.
In short, while many consumers and taxpayers cannot afford an electric vehicle, the EV tax credit results in generous subsidies for the wealthiest Americans.
Not only is the EV tax credit highly regressive, but its purported environmental benefits are often exaggerated. Although electric vehicles reduce CO2 emissions compared with new internal combustion vehicles, data from federal Energy Information Administration indicates that the overall reduction will be less than 1 percent of total forecast energy-related CO2 emissions in the United States through 2050. That reduction will have no measurable impact on global climate.
In light of this fact, policymakers should consider that incentives designed to encourage electric vehicle ownership may have adverse consequences on society that outweigh their benefits.
The evidence also suggests that the EV tax credit has been ineffective in boosting electric vehicle sales. Despite numerous incentives from federal, state, and local governments to purchase electric vehicles, consumers have been reluctant to do so. 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. Meanwhile, there is little evidence that sales growth will pick up anytime soon.
Consumers have good reason to question whether electric vehicles are a sound investment. A mid-size electric vehicle costs 60% more to maintain over a 20-year period than a comparable gas-powered car. There are also indirect costs to consider, like the fact that electric vehicles sometimes take all day to recharge and often a limited range in miles, making them unsuitable for long-distance driving.
Instead of removing the cap on the EV tax credit and extending a misguided policy whose costs far outweigh its benefits, Congress should do away with it entirely. Wealthy households can purchase electric vehicles without billions of dollars in handouts from ordinary taxpayers.