For decades, the federal government has been trying to coax American consumers into buying electric vehicles. It’s not working. Policymakers should end costly electric vehicle subsidies and let the market work. A good solution to this problem will be this week’s reintroduction of legislation to repeal the electric vehicle (EV) tax credit by Sen. John BarrassoJohn Anthony BarrassoWatch: GOP leaders discuss Biden's first year in office McConnell will run for another term as leader despite Trump's attacks Senate Minority Whip Thune, close McConnell ally, to run for reelection MORE (R-Wyo.) and Rep. Jason SmithJason Thomas SmithDon't just delay student debt, prevent it Nunes resignation sets off GOP scramble on Ways and Means The Hill's Morning Report - Presented by Uber - New vaccine mandate in NYC; Biden-Putin showdown MORE (R-Mo.).
The electric vehicle (EV) tax credit, which offers car buyers up to $7,500 off the price of a qualifying car, applies to manufacturers that sell fewer than 200,000 vehicles in a year. Beyond this threshold, the credit is gradually phased-out. Tesla and General Motors have already hit the 200,000 vehicle limit, so their subsidies are set to expire in 2020. Several other companies are approaching the cap as well.
Some in Congress want to lift the cap, creating a permanent subsidy to electric automakers. This would open to door to other energy credits that would further distort the market and impose a high cost on taxpayers.
Removing the cap would cost Americans $95 billion over the next 15 years, reducing average household income by as much as $70 per year between 2020 and 2035, according to a new study commissioned by the Institute for Energy Research. That dwarfs the program’s already-hefty costs, estimated at $7.5 billion from 2018 to 2022.
Despite billions of dollars in subsidies, consumers simply aren’t buying EVs. In 2017, the 199,826 plug-in EVs sold in the U.S. accounted for barely 1 percent of the automobile market. It’s not hard to see why. Even after considering the cost of fuel, EVs are about $5,000 more expensive over their lifetimes than conventional cars, and consumers prefer to avoid the inconvenience of EVs’ short ranges and long recharge times.
The costs of the EV credit are disproportionately borne by lower-income consumers who cannot afford to purchase EVs, while the benefits of the credit are funneled to a narrow segment of high-income households, many of which would have purchased EVs even without government involvement. Rather than acting as an effective incentive, the credit is often simply a windfall gain for the wealthy.
In 2016, of the 57,066 individual taxpayers who received the credit, 78 percent had at least a six-figure income and 7 percent reported more than $1 million in income. Buyers of the electric Ford Focus, for example, have an average household income of $199,000, while Tesla shoppers have an average household income of $293,200. By contrast, less than 1 percent of total EV credits went to households with adjusted gross income below $50,000 in 2014. Given that median household income that year was $53,482, about half of Americans received virtually no benefit from the EV credit program.
It would be one thing if the EV credit made a meaningful dent in greenhouse gas emissions, but that’s not the case. The International Energy Agency estimates that EVs will reduce global CO2 emissions by less 1 percent in 2040. An independent analysis by the Manhattan Institute yielded an even lower CO2 estimate and found that the spread of electric vehicles would actually increase other harmful pollutants like sulfur dioxide and nitrogen oxides and have no measurable impact on climate trends.
Through the EV credit, the government picks winners and losers. Large automakers and wealthy consumers line their pockets with ordinary taxpayers’ money. Instead of doubling down by extending this unfair and ineffective program, it’s time to repeal the EV credit for good.
Steve Pociask is president and CEO of the American Consumer Institute, a nonprofit educational and research organization. For more information about the Institute, visit www.TheAmericanConsumer.org or follow us on Twitter @ConsumerPal.