The federal tax credit for the purchase of electric vehicles has survived its objective by far and is now a blatant example of government surpassing and economic iniquity.
Originally introduced in 2008 to stimulate an emerging market, then renewed and widened in 2022 as part of the law on the reduction of inflation, this credit remains what was from the start: an ineffective subsidy mainly benefiting from the rich. Congress should end it.
On the budgetary side, we face a budget deficit of $ 2 billion, and this increases. According to the Treasury, credits for electric vehicles in the law on inflation reduction, which can cost up to $ 7,500 on certain new electric vehicles and up to $ 4,000 on certain previously held electric vehicles, represent $ 112 billion in lost income. But based in recent years, there are reasons to believe The cost will be much higher.
In addition, EV credits are part of a set of industrial firm of energy tax credits, mandates and requirements “buy American” under IRA which will cost more than 1 dollars billion Over 10 years, deepening the deficit hole in which we are.
Beyond the price label that is the responsibility of taxpayers, credit is unfair for the vast majority, which – being less easy than EV buyers – lead to relatively affordable petrol vehicles and do not harvest any financial advantage of the credit. Studies show several times that Most of these credits go to high income peopleCredit a tax reduction for the rich. For example, the study of the Congressional Research Service note: “For vehicles purchased in 2021, taxpayers with an adjusted gross income (AC) greater than $ 100,000 represented 22% of all declarants and received 84% of the services.”
The income limit for the tax credit will go ($ 150,000 for unique declarations, $ 300,000 for joint declarations) and reimbursement can include certain advantages to low -income taxpayers. However, electric vehicles have higher purchase prices than comparable gas vehicles, even with tax credits, and the installation of home load equipment is easier for owners, who tend to have higher income, compared to tenants. As a result, tax credits will probably remain a boondoggy of higher income taxpayers.
In fact, a recent study By five economists find that “75% of subsidies to electric vehicles claimed under IRA have gone to consumers who would still have bought an electric vehicle.” According to their calculation, each car sold due to the incentive (around 25% of the total number of vehicles sold) A cost for taxpayers of $ 32,000. The inability of the credit to attract those who would prefer to buy a gas vehicle is a clear sign of its failure, which explains the need to impose even more authoritarian measures such as mandates linked to the EV.
The worst thing is the fact that in recent months, sales of electric vehicles have stalled. Despite the assistance of taxpayers, sales get stuck at 7% On the market, strongly suggesting that if the tax credits can modify the schedule for electric vehicle purchases, they do not increase the demand.
For those who believe that the cost and the disparity in our tax code are worth it because we have to fight climate change, I have news for you.
First, the environmental benefits of credit are not clear. Electric vehicles are not without emissions when you consider the carbon footprint of batteries and electricity production. Also, EVS mainly replace the purchase more recent gas vehicles, which pollute less than older vehicles that remain on the road. Combined with the fact that many beneficiaries of tax credits would still have bought an EV, it is unlikely that there are many environmental bangs for the field.
The cost of government winners aggravates this problem. There are few reasons to believe that the technological path that civil servants prefer is the optimum – and the danger is that tax credits create market distortions that express better solutions.
By artificially supporting manufacturers of electric vehicles and directing consumers to specific technology, others – perhaps better – technologies can be thwarted. Hybrids, rechargeable hybrids, fuel cell cars, alternative fuels or other emerging innovations are penalized despite their important role in resolving environmental and energy challenges. Each deserves an equal footing to determine which can offer more effective environmental advantages, lower costs or both.
However, instead of promoting open competition and letting the best solutions are revealed or allowing different technologies to meet different customer needs, the tax credit creates winners and losers according to political priorities.
Finally, the tax credits were initially sold By the sponsors of the congress, as a means of “helping to pass these products during the initial production stage … at the mass production stage, where economies of scale will lower costs and credit will no longer be necessary.” We have already passed this scene.
Although still small, the EV market has matured and no longer needs these crutches. Even Elon Musk, the director general of Tesla Motors – the American sales leader EV With 2 cars out of 3 sold and the largest beneficiary of credits – said that it should end. Writing in the Wall Street Journal, Jack Hollis de Toyota called for the end expensive and ineffective tax credits.
It is high time that this policy will disappear. The EV federal tax credit is an ineffective regressive program that benefits the rich at the expense of average Americans. To eliminate it fair, reduce government interference on the market and, thanks to real competition, better allow resources to go to initiatives that allow as many people as possible to buy cleaner vehicles.
There are much more effective ways to design policies to combat climate change. The best is to release capital to finance as many green and innovative projects as possible by reducing taxes on capital gains and renewing the ability to immediately deduct 100% of capital investments. Projects such as solar farms, wind turbines and grid infrastructure require massive initial capital investments. Without full expenditure, these costs must be depreciated over many years, which reduces the current value of tax advantages. In addition, better cash flow in the early years facilitate funding. There is also a synchronization problem. The clean energy transition requires rapid deployment of new technologies. Complete expenditure encourages companies to speed up investments rather than delay them. The federal government should also raise authorization barriers that the bureaucrats have erected who makes construction and innovation harder than they should be.
The subsidy of high -end car buyers is a bad strategy for making significant environmental progress. But we know how to do better.
Veronique de Rugy is main researcher at the George Mason University Mercatus Center.
