Electric car tax credits subsidize inequality

Electric car tax credits subsidize inequality
© Greg Nash

Should the federal government subsidize electric car purchases by providing an electric vehicle tax credit? I think not, and neither do most voters.

Why? Subsidies come from our tax dollars. Should a moderate-income person, who is likely to be driving an older or used car have her tax dollars actually go to provide a new, energy-efficient electric car to a higher income person? Hardly. 

Thus, no matter what demographic you survey, as many as two-thirds of voters are "resistant to the idea that they should pay for people to buy electric vehicles."
 

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Unlike the overwhelming cross-sectional opposition to the electric vehicle (EV) tax credit, a profile of those who benefit from the electronic vehicle tax credits is not so diverse. 

In report after report, year after year, the data show that the wealthy are most likely to enjoy electric vehicles and the federally funded tax credits to help pay for them. We are sacrificing tax fairness in the name of energy efficiency, and in the process, we are simply subsidizing inequality.
 
Energy economists at the University of California, Berkeley singled out the EV tax credit program as the most extreme example of how certain tax expenditures "have gone predominantly to higher-income Americans" as "the top income quintile has received about 90 percent of all credits."

The following year, a subsequent UC, Berkeley analysis of nearly 100,000 rebates issued from California's clean vehicle incentive program found that 83 percent of recipients "reported yearly incomes of more than $100,000."
 
Nationally, the largest share of households with hybrid and electric cars earned at least $200,000, per a 2017 survey conducted by CarMax and CleanTechnica.

Data from the U.S. Department of Transportation's (DOT) 2017 National Household Travel Survey (NHTS) also reveal that "about two-thirds of households with [battery, electric or plug-in hybrid electric vehicles] have incomes higher than $100,000."

And as the Pacific Research Institute added last year, a full "79 percent of electric vehicle plug-in tax credits were claimed by households with adjusted gross incomes of greater than $100,000 per year."  

Meanwhile, the median income for an African-American household was less than $40,000 in 2017. Tax breaks like these that mainly benefit the wealthy exacerbate the already alarming racial wealth gap.
 
Electric vehicle manufacturers earned $1.5 billion because of the $7,500 tax credit new buyers of electric vehicles receive, but that's not enough for them — they want more! Giants like General Motors and Tesla have embarked on a lobbying effort to help maintain their subsidies. 

At a time when the government is talking about reducing the availability of subsidized food, these folks want to provide more money for subsidized cars. They already get $7,500 for every vehicle sold up to 200,000. 

The D.C. lobbying coalition charged with expanding the EV credit justifies its push with the promise that "reforming the credit will create a level playing field for ALL electric vehicle manufacturers, giving consumers the freedom to decide which car they want in a free and fair market."  
 
What about a level playing field for consumers? Electronic vehicle manufacturers say they need parity, but low and moderate-income automobile purchasers never see any form of parity. 

Why should the companies that hit their subsidized limit get a break on selling more luxury electric vehicles while taxpayers who cannot afford electric cars get nothing?

The income disparity between electric-vehicle owners and the average American taxpayer is stark, but it is even more galling that the industry considers the tax credit to be a "successful incentive so far" given the demographic disparity.

According to DOT data from its 2017 NHTS, African-American households account for a mere 1.2 percent of the vehicles on the road eligible for the credit. All minorities combined, meanwhile, comprise less than 15 percent. 

These statistics are particularly troubling given that many EV corporations have iffy records on race at their respective factories. In fact, a number of the very manufacturers hoping to extend their taxpayer-funded windfall have been embroiled in controversy amid lawsuits on charges of racial discrimination.
 

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The electric vehicle industry says that the original tax credit it hopes to continue has "created unbalanced market incentives." But the imbalance is not among companies that manufacture electric vehicles but among the consumers who cannot afford the luxury vehicles. 

Manufacturers were gifted with a tax credit for each unit sold up to 200,000 units. Consumers who don't have the income flexibility to purchase these cars are giftless in this process. Instead, they are participating in a process that transfers income from the rest of us to the wealthy, a reverse Robin Hood situation.
 
The tax credit for electric-car manufacturers was intended to be a time-limited experiment to promote energy efficiency. Let's leave it at that and let it expire. It is egregious that all taxpayers pay for luxury vehicles enjoyed by a small fraction of taxpayers. This is subsidized inequality at its absolute worst, and it needs to stop.
 
Julianne Malveaux is an economist, author and commentator. She serves on the board of the Economic Policy Institute. Follow her on Twitter: @drjlastword.