Study: Electric Vehicle Tax Credit is High Cost, Low Reward

Scott Lauermann
Posted May 21, 2019

Having already shelled out $2.2 billion for the federal tax credit for purchases of electric vehicles (EV) between 2011 and 2017, U.S. taxpayers could see that cost increase seven-fold over the next decade – while yielding negligible results, according to a new study.

Coupled with the fact that upper-income households have bought most of the EVs sold in the U.S. (and benefited from these tax subsidies), the report continues to raise questions about the EV subsidy and legislation that would expand it.

Under current law, consumers may receive a federal tax credit of up to $7,500 if they purchase a qualifying electric vehicle. The credit is available for the first 200,000 EVs an individual automaker sells and is phased out for that manufacturer’s vehicles once the cap is reached.

Under the recently introduced Drive America Forward Act, Congress would increase the vehicle cap to 600,000 qualifying vehicles, allowing the program’s price tag over the next 10 years to balloon to more than $15.7 billion – a 67 percent increase over the $9.7 billion cost that would be incurred from the current cap:

Per the report:

“This policy, which can be found in the Driving America Forward Act, is estimated to cost $6.3 billion over the first five years (2019-23) and $15.7 billion over the 10-year budget window (2019-28). The cost per additional vehicle sold because of these credit modifications would range from $23,000 to $33,900 depending on the year.”

The report, which was commissioned by the American Fuel and Petrochemical Manufacturers, makes clear that this proposed vehicle cap increase is a significant investment for American taxpayers who bore the $2.2 billion cost of the credit between 2011 and 2017.  

Keep in mind that the EV tax credit has overwhelmingly benefited upper-income households, and they likely would benefit from an increase in the subsidy – with other Americans footing the bill.

The U.S. Energy Information Administration estimates that roughly two-thirds of EVs sold in the U.S. go to households with annual incomes in excess of $100,000. It’s not just wealthy households cashing in on these subsidies, corporations are expected to claim nearly half or $3.7 billion worth of credits between 2018 and 2022, according to the nonpartisan Joint Committee on Taxation.

The question is whether U.S. taxpayers should be on the hook for helping wealthy individuals and profit-seeking corporations buy fancy electric vehicles? Frank Macchiarola, API vice president for downstream and industry operations, responding to introduction of the Driving America Forward Act:

“It’s difficult to believe anyone – even people who drive luxury cars – would think it’s good public policy to make the average taxpayer subsidize wealthy luxury car owners. We shouldn’t confuse bipartisanship with smart or fair policy. This bill is neither. The data shows that current policy essentially provides tax breaks for the wealthy to purchase luxury cars at the expense of working-class families. In fact, the top 20 percent of earners receive 90 percent of all of these tax credits. We oppose S.1094 and urge others to do the same.”