NEXT TIME you see a fancy new electric car, ask the owner for a ride. After all, you helped pay for it. The federal government provides a $7,500 tax credit for buying or leasing electric vehicles, which means that it transfers that much money from everyone else to the relative handful of Americans who have so far purchased a plug-in vehicle. Cost before tax credit: $74,500 in the case of a Tesla Model S, or $37,495 for a smaller, less capable Chevrolet Bolt. This is a Robin-Hood-in-reverse policy. Electric-car purchasers tend to be upper-income, and the credit is non-refundable — meaning its value increases as your income tax liability increases (up to the $7,500 maximum). It’s worth nothing to lower-income folks who don’t owe federal tax. And even if it were fully refundable, lower-income people would rarely qualify because the cars would still be too expensive for them. Some 90 percent of the credit’s benefits accrue to the top 20 percent of taxpayers, according to a 2015 study by Severin Borenstein and Lucas Davis, economists at the University of California at Berkeley.
Republicans briefly considered axing the electric-car credit in their tax reform bill, then decided to leave it in — with all the bill’s other benefits for the rich — at the urging of the auto industry. Carmakers insist now that the break should be not only retained but also, as General Motors CEO Mary Barra said March 7, “expanded, so our customers continue to receive the benefit going forward.” Current law says that the credit applies only to the first 200,000 plug-ins any manufacturer sells, and phases out over the year after the company hits that benchmark. GM has already sold about 160,000, as has Tesla, billionaire Elon Musk’s company. Ms. Barra therefore wants Congress to raise the 200,000-car limit or eliminate it altogether, according to the Wall Street Journal.
The automakers have a point: If Washington is going to require them to produce the vehicles, which have been slow to catch on with consumers in part due to their relatively high cost, the least it can do is help subsidize their sales. Maintaining the ceiling ironically punishes Tesla and GM for entering the market first, since they are about to exhaust their 200,000-car quotas just as European competitors are about to start on theirs.
Then again, Washington could just level the playing field by eliminating the tax break for everyone. At a minimum, Congress should allow the existing rule to phase out as planned. This issue poses a trade-off between two public policy goals — environmental quality and economic fairness. Tax subsidies to buy cars are far more efficient at worsening the latter than improving the former, in part because much of the electricity that fuels plug-in vehicles still derives from fossil fuel sources such as coal and natural gas. If electric vehicles are the wave of the future, they’ll have to survive on their own economically sooner or later. It should be sooner. Car corporations, billionaire entrepreneurs and their well-heeled customers have received enough assistance from the rest of us already.