EV Tax Credits and the Shift Towards Electrification
Kate Meulemans
As Americans begin to the shift toward cleaner energy, the demand for electric vehicles has skyrocketed, but not without a similar spike in the political attitude surrounding electric cars. Switching from gas to electric cars is no longer just a fad among progressive elites and is in fact becoming embedded into the mainstream vernacular. But even so, buying a new car solely for fuel efficiency is not something that most people are financially stable enough to do. In this respect, it is important to not only prioritize a political push that requires more electric cars to be manufactured, but also to consider how the government can assist and motivate Americans to switch to these vehicles. This blog will discuss the goals and aspirations of private companies and politicians to prioritize electric car sales and some possible legal and policy methods that address accessibility to these vehicles.
In August of this year, President Biden announced his target to achieve production of zero-emissions vehicles for half of all new vehicles sold by 2030.[1] This announcement follows on the heels of a nationwide push to prioritize environmental issues under the Biden administration. Indeed, not only are environmental issues being ostentatiously incorporated into public policy decisions, but private companies have also made pledges of their own. GM, for example, has committed to making 100% of their vehicles zero-emission by 2035 and Ford has committed to making sure 40% of their vehicles sold will be electric by 2030.[2]
Nevertheless, in order to actually realize these important but challenging goals, many drivers are going to need financial assistance to make this switch. In June 2019, the average price for a new (gas-powered) car was $36,600, compared to an electric car, which on average has a sticker price of$55,600.[3] It is important to note, however, that although electric vehicles continue to be more expensive than non-electric vehicles, their average price has dropped from the 2018 price of $64,300. This is a 13.4% drop in price in just one year![4] To put these numbers in perspective, in 2020, the average American had a household income of $67,521. What this means is that most Americans are not in a place to make a purchase of this nature without substantial assistance from loans or government plans.[5]
Certainly, these statistics are not lost on politicians: there are in fact many proposed policy solutions to ensure the smooth transition to electric vehicles for Americans across the entire socioeconomic spectrum. Of particular importance is the recently proposed infrastructure bill, which attempts to facilitate an easy transition to electric cars by promising accessible charging stations, vehicle purchase assistance for low- and moderate-income communities, and other supplementary programs including to but not limited to a rehaul on tax credits for buyers of electric cars.[6] Specifically, the bill allots $7.5 billion to electric vehicle chargers to encourage accessibility once these cars become common in the marketplace. It also expands tax credits for buyers by making them refundable and usable at time of purchase.[7]
Thus, following the passage of this legislation, owning an electric car be much more logistically feasible for many for whom it wasn’t before, but refundable tax credits may also allow for more people to make the switch due to a lower financial burden. In the aforementioned bill, this proposed upgraded electric vehicle (EV) tax credit would allow for buyers to actually make money on their taxes if their EV tax credit outweighs what they owe to the IRS.[8] This means that Americans would be able to collect money in April come tax day and these new EV tax credits would allow buyers to use their refund at the dealership to reduce the price of their new car.[9]
While the solutions above definitely address the issue of financial burden, there are still some unsolved issues that need to be addressed in order to move the entire country electric by 2030. First, the bill lets Americans apply up to $12,500 to an efficient vehicle purchase, $4,500 of which is dependent on buying an American-made union car.[10] Thus, the new EV tax credits are largely dependent on whether vehicles are made in America by union workers. This provision has angered foreign car brands like Honda who operate in the United States but are based overseas.[11] [WR1] There has also been pushback on the proposed reliance on tax credits because of the unintended consequences of incentivizing American made cars. In particular, some opponents suggest that too many federal subsidies for American cars will lead to a lack of competition and inherently rig the American market to only make certain companies affordable, possibly threatening antitrust and free competition laws.[12] In this way, the possible issues with market freedom and perhaps more simply the notion of paying for an expensive car they might not yet need remains an outstanding concern in the context of electric vehicles.
In sum, a major reason that more consumers are not jumping to buy electric cars is the cost, especially those who are looking to transition from gas-based SUVs to electric SUVs, both of which are at the more expensive end of their respective markets.[13] Therefore, providing the discount at the time of purchase will likely motivate many weary buyers to make the jump from their gas-guzzling vehicles to eco-friendly electric cars because upfront costs are a major burden and an important consideration for new purchasers. As discussed above, some prevailing concerns with this shift even in light of legislative assistance is the remaining cost of the vehicle and the consequent possibility of dwindling market competition.
Kate Meulemans is an Associate Editor with MJEAL. Kate can be reached at kmeulema@umich.edu.
[1] “FACT SHEET: President Biden Announces Steps to Drive American Leadership Forward on Clean Cars and Trucks,” The White House (August 05, 2021) https://www.whitehouse.gov/briefing-room/statements-releases/2021/08/05/fact-sheet-president-biden-announces-steps-to-drive-american-leadership-forward-on-clean-cars-and-trucks/.
[2] Ella Nilsen, “Biden wants an aggressive transition to electric vehicles. A surprising ally is pumping the brakes,” CNN, (September 08, 2021) https://www.cnn.com/2021/09/08/business/biden-uaw-electric-vehicles-climate/index.html.
[3] Hearst Autos Research, “How Much is an Electric Car?” Car and Driver https://www.caranddriver.com/research/a31544842/how-much-is-an-electric-car/.
[4] Id.
[5] Shrider, Kollar, Chen, et. al., “Income and Poverty in the United States: 2020,” Census Bureau, (September 14, 2021) https://www.census.gov/library/publications/2021/demo/p60-273.html.
[6] H.R.3684 – Infrastructure Investment and Jobs Act.
[7] Id.
[8] Shannon Osaka, “Congress is poised to fix the most annoying thing about buying an electric car,” Grist, (November 1, 2021) https://grist.org/transportation/congress-is-poised-to-fix-electric-vehicle-tax-creditsout-buying-an-electric-car/.
[9] Id.
[10] Id.
[11] “U.S. Democrats propose dramatic expansion of EV tax credits that favors Big Three,” CNBC, (September 11, 2021) https://www.cnbc.com/2021/09/11/us-democrats-propose-dramatic-expansion-of-ev-tax-credits-that-favors-big-three.html.
[12] [12] Rachel Greszler and Katie Tubb, “Proposed Electric Vehicle Tax Credits Benefit Unions, Wealthy Individuals – Not Environment,” The Heritage Foundation, (October 22, 2021) https://www.heritage.org/environment/commentary/proposed-electric-vehicle-tax-credits-benefit-unions-wealthy-individuals-not.
[13] Tom Krishner and David McHugh, “Automakers embrace electric vehicles. But what about buyers?” AP News, (March 15, 2021).