As long as technology drives innovation in the energy and automobile industry, it seems environmentalists will be there to push for carveouts and subsidies that favor market choices they deem as “acceptable” for U.S. consumers.
Nowhere have these efforts been more pronounced than in their use of fiscal policy to nudge consumers into electric vehicles. Invariably, this policy raises costs on us all.
Most recently, there has been an effort in Congress to expand the cap on the electric vehicle tax credits, which give purchasers a $7,500 tax credit. Currently, this tax credit only applies to the first 200,000 cars a manufacturer makes in a year. The credit was created to phase out after six quarters, once manufactures hit the 200,000 car limit, but as companies such as Tesla, General Motors and Nissan get closer to that cap, their lobbyists and allied groups are seeking to expand the credit and essentially create a permanent subsidy for EV sales.
Allowing these tax credits to continue would essentially establish a permanent government carveout, creating incentives to purchase specific products rather than allowing the free market to drive American consumer decisions. Moreover, subsidies for electric vehicles overwhelmingly benefit the wealthy and disproportionately impact low-income consumers — who can’t afford to purchase EVs but are still forced to pay for supporting EV infrastructure.
In fact, a 2015 report from the Energy Institute at Haas shows that Americans in the top 20 percent of income earners received about 90 percent of the federal tax credits for EVs. Additionally, data shows that the majority of the people who claim the EV credit have a household income of at least $100,000 a year, and 17 percent of the credit’s beneficiaries make over $200,000 a year.
Furthermore, this tax credit has done little to drive demand for EVs. Battery electric vehicles accounted for just 0.06 percent of light-duty vehicles sold in 2017, and plug-in hybrid electric vehicles only reached a 0.05 percent share. Also, non-plug-in hybrids sales fell from 3.0 percent in 2012 to 1.9 percent in 2017. This begs the question, why is the government continuing to use taxpayer dollars to promote a product that a vast majority of American consumers don’t want?
Some proponents of the credit point to the Joint Committee on Taxation’s score of the repeal, which says repeal of the credit would cost approximately $200 million over a 10-year period with the cap in place. However, the cost of uncapping the credit and making it permanent would be exorbitant, potentially costing the government billions. Allowing a measure to extend the EV credit could further open the door to other energy credits such as wind and solar, granting new subsidies to agenda-driven environmentalists while leaving American taxpayers to pick up the check.
It’s clear that extending the EV tax credit is bad fiscal policy and anti-free market. U.S. Sen. John Barrasso (R-Wyo.) understands this credit unfairly burdens American consumers and recently introduced the Fairness for Every Driver Act. This bill not only ends the federal EV tax credits, but also strengthens the Highway Trust Fund by ensuring that alternative fuel vehicle drivers pay into it. This is the type of policy we should be encouraging, not a carrot-and-stick approach from government that dictates market winners and losers.
America’s economic development depends on the promotion and protection of free markets to innovate, and expanding the EV tax credits corrupts this framework and undermines these efforts. It’s time for Congress to end this corporate giveaway and stop the feeding of a few special interests at the expense of the many. Let’s return purchasing decisions back to consumers and their market choices, where they belong.
Matthew Kandrach is president of CASE, Consumer Action for a Strong Economy, a free-market oriented consumer advocacy organization.
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