Opinion

On Tax Credits for EVs, Consumers Pay the Price, but Few Experience the Benefits

No fewer than three separate auto manufacturers — Porsche, GM and Audi — ran ads featuring electric vehicles during the Super Bowl this year. With 30-second spots going for at least $5 million a pop, you can bet the decision to run those ads didn’t come lightly.

But EVs are complicated animals for these carmakers. Changing from an internal combustion engine to an all-electric powertrain has forced job losses, plant closures, and a rethinking of the automotive manufacturing process. EVs are expensive to make, and that high cost is passed along to consumers.

So what’s driving these companies to begin shifting gears toward EVs? For starters, our tax dollars. The federal government currently offers a $7,500 tax credit to those who purchase a qualifying electric vehicle. States also offer a wide variety of rebates and incentives. Pennsylvania’s EV rebate is $1,500; New Jersey’s governor just signed a bill that would hand out $5,000 per EV on top of the state’s sales tax exemption for EVs; and California, where about half of all EVs are sold in the U.S., offers a rebate ranging from $2,000 to $4,500. 

These EV subsidies are designed to lower the barrier to entry, but many are deeply flawed in their design.

Take the federal tax credit — if you purchase an EV, you get $7,500 knocked off your tax bill that year. But if you don’t owe $7,500 in federal taxes that year, you don’t get the full $7,500. For example, a teacher earning $40,000 may only owe about $3,100 in federal income taxes. If she purchased an EV, her EV tax credit would equal only the amount she owed that year — $3,100, not the full $7,500. Meanwhile, someone earning a lot more — and who arguably wouldn’t need the help buying an EV — would get the full $7,500 credit. 

It won’t surprise you to learn, then, that high earners are the primary beneficiaries of the federal EV tax credit program. Nearly 80 percent of those who have claimed the credit make $100,000 or more annually, according to a Congressional Research Service study. 

A study by Morgan State University’s Andrew Farkas unpacks these demographics further. In Maryland, EV owners are predominantly white, male, well-educated and affluent. “In essence government at state and federal levels has been subsidizing mostly affluent households to purchase new EVs, which opens up a huge equity issue,” he concludes.

Despite this disparity, automakers are increasingly compelled to produce more EVs through government mandates. Eleven states have adopted California’s zero-emission-vehicle (ZEV) mandate, which requires automakers to sell a certain percentage of EVs in each state. Those manufacturers that don’t meet quota must buy credits, further driving up the costs of EVs and all other vehicles.

Still, after all the government subsidies and mandates, EV sales remain soft. Preliminary data shows EV sales in the U.S. fell in 2019, down about 9 percent from 2018 levels. It appears consumers are still skeptical about the new technology and how it will fit into their lives.

And questions remain about how EVs will impact our transportation infrastructure. EVs don’t use gas, which means they’re not paying the federal gas tax, yet they’re still using our roads and bridges and contributing to wear and tear. If these government mandates are successful, more EVs will be on our roads in the coming years. With our national transportation infrastructure in serious need of repair, Congress needs to find a way to ensure EV drivers are paying their fair share for road use.

Public charging and “range anxiety” are additional concerns for consumers — are drivers able to travel cross country in an EV with the same speed and convenience as traditional vehicles? A recent “road test” by the Wall Street Journal demonstrates the answer is no.

To address this, utility companies have been eager to step in, offering to install EV charging stations and infrastructure. But those utilities often want to pay for that infrastructure through rate increases on the rest of us, including low- and fixed-income families and small businesses who can ill-afford to pay higher utility bills. And many who do pay for those infrastructure installments would never use them.

While utilities, along with federal and state governments, are eager to usher in a new era of electrification, we cannot continue to sacrifice the rights of consumers to provide benefits that only a privileged few are able to enjoy.

 

Matthew Kandrach is President of CASE, Consumer Action for a Strong Economy, a free-market oriented consumer advocacy organization.

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