California consumers accounted for 46 percent of new electric vehicle registrations last year, far more than any other state.
A California Air Resources Board report this year to the Legislature found that state and federal tax incentives help consumers bridge the pricing gap for the cars, which tend to cost more than comparable conventional vehicles.
The Center for Sustainable Energy, which administers the rebate program, found that about “half of the participants considered the rebate extremely important in making their electric vehicle purchase a possibility and they would not have purchased or leased their EV without the rebate.”
But the federal tax credit is under siege in Washington, D.C., where it’s beginning to be phased out. The Trump administration has proposed eliminating it altogether.
Opponents cite a 2016 report from the nonpartisan Congressional Research Service that found that 78 percent of the federal tax credits went to tax filers with adjusted gross incomes of $100,000 or more. Seven percent had incomes of more than $1 million.
The credit is being “exploited,” said Senate Environment and Public Works Committee Chairman John Barrasso, a Wyoming Republican. He said the break is “no longer necessary.”
California could feel the sting of a reduced credit like no other state.
Federal and state breaks are needed, argued former Gov. Jerry Brown. “It’s still pretty early in the development of electric vehicles,” he told McClatchy. The industry faces stiff international competition, and “America has to do something in response. One way to do that is the federal credit.”
Rebates are capped for single filers with incomes of more than $150,000, $204,000 for head-of-household filers and $300,000 for joint filers. Consumers can claim rebates of up to $7,000 per eligible zero-emission vehicle, which includes electric, plug-in hybrid electric or fuel cell vehicles.
In the nation’s capital, a group of senators and House members are pushing to expand the federal credit.
So why not follow California’s lead and put limits on eligibility?
Because “we want as many electric vehicles as we can get. Anything that incentivizes purchasing more vehicles ultimately has the effect of supporting lower cost vehicles,” explained Rep. Dan Kildee, a Michigan Democrat who’s helping lead the expansion effort.
California transportation expert Daniel Sperling said the income cap debate is a difficult one.
“One way to increase the effectiveness of the incentives and to be more fair is to direct the incentives to less affluent consumers, as California now does,” said Sperling, director of the Institute of Transportation Studies at the University of California Davis.
But, he added, “the most urgent imperative at this time is to subsidize the high cost of new EVs as a way of motivating car companies to accelerate their investment in EVs.”
The major federal tax break for qualified plug-in electric vehicles was first enacted in 2008. It ranges from $2,500 to $7,500 per vehicle bought after December 31, 2009. It begins to phase out when at least 200,000 qualifying vehicles per manufacturer have been sold for use in this country.
Tesla passed the threshold last year, and since July 1, the credit on its eligible vehicles has been reduced to $1,875. Next year, no credit will be available on eligible Teslas.
Credit for buying eligible General Motors vehicles is also being phased out. In April, the Internal Revenue Service reported that GM had sold more than 200,000 eligible vehicles during the last quarter of last year, triggering the phaseout. Since October 1, the credit has been reduced to $1,875 per GM vehicle, and after March 31, 2020, no credit will be available.
There’s been other controversy. The Treasury inspector general analyzed 239,422 plug-in credits claimed between fiscal years 2014 through 2018 – years that electric vehicle sales began to climb – and found 16,510 taxpayers who received $73.8 million in “potentially erroneous credits.”
The IRS responded that it will begin a “recovery program for potentially erroneous credits identified in your report,” as well as initiate different auditing methods, wrote Eric Hylton, IRS commissioner of the IRS small business/self employed division, in a memo responding to the report.
Supporters of the electric vehicle credit countered that such reports can be misleading.
“The IG report addresses only the IRS’ systems and what should be on its forms,” said Genevieve Cullen, President of the Electric Drive Transportation Association. “The merits of the credit itself, which have been widely documented in economic and environmental benefits, are simply outside the scope of this report.”
Congressional Research Service officials would not comment on the agency’s report, which was updated in May.
Ben Jervey, research lead at Koch vs. Clean, which fights against fossil fuel interests and promotes clean energy, maintained that the data showing the credit going largely to wealthy taxpayers is misleading.
It fails to take into account leased vehicles, Jervey said, where the credit is often used to reduce the price. More than half of electric vehicles are estimated to be leased.
“The lending company is passing the tax credit on to the lessee,” he said. “It’s part of the marketing.”
Markets are growing, expansion supporters say, but still need help. New registrations hit 208,000 fully electric vehicles last year, according to an analysis by business intelligence firm IHS Markit.
The company expects 350,000 new EVs to be sold in this country next year.
That sort of growth is fuel to the opponents’ arguments.
“I have nothing against electric vehicles or the people who buy them. I just don’t want to pay for them,” said Thomas Pyle, president of the American Energy Alliance, a nonpartisan group that promotes free market policies.
“The EV tax credit has served its purpose,” Barrasso wrote earlier this month in a letter to Senate Majority Leader Mitch McConnell, who has not responded.
The Trump administration proposed ending the credit this year, part of its effort to end subsidies for similar items, notably renewable energy sources.
Phasing out the break could have a bigger impact on California than any other state. State consumers accounted for 46 percent of new electric vehicle registrations last year.
The expansion effort is being pushed by a group of House and Senate lawmakers who have long promoted clean energy, backed by environmental groups, auto industry interests and others.
A key goal is to spur production, to have it reach a level where it’s more efficient and less costly to produce the vehicles.
“We’re kind of getting to where we need to be,” said Kildee.
Barrasso had a different take. “Supporters of the credit want taxpayers to continue footing the bill for EV purchases,” he said, “both real and ineligible, for years to come.”