George Will: Take electric-vehicle tax credit off the road
Some government foolishness has an educational value that compensates for its considerable cost. Consider the multibillion-dollar federal electric-vehicle tax credit, which efficiently illustrates how government can, with one act, diminish its already-negligible prestige while subtracting from America’s fairness.
Sen. John Barrasso, R-Wyo., and Rep. Jason Smith, R-Mo., hope to repeal the tax credit, which probably will survive because it does something that government enjoys doing: It transfers wealth upward by subsidizing affluent individuals and large economic entities.
In 1992, Congress established a subsidy for buyers of electric vehicles, which then were a negligible fraction of the vehicle market. In 2009, however, as the nation reeled from the Great Recession, the Obama administration created a tax credit of up to $7,500 for consumers who buy battery-powered electric vehicles.
The tax credit quickly became another example of the government’s solicitousness for those who are comfortable, and who are skillful in defense of their comforts. Today, demand for electric cars is still insufficient to produce manufacturing economies of scale (after a decade of production, moral exhortations and subsidies, electric cars are a fraction of 1% of all vehicle sales), and batteries are expensive. So, The Wall Street Journal reports, the $42,000 average price for an electric car is $8,000 more than the average price of a new car, and $22,000 more than the average price of a new small gasoline-powered car.
The Pacific Research Institute has examined 2014 IRS data showing that 79% of the electric-vehicle tax credits were collected by households with adjusted gross incomes of more than $100,000, and 1% by households earning less than $50,000.
Some states have augmented the federal credit: In California, where about half of electric vehicles are sold, consumers can gain up to $15,000; in insolvent Connecticut — blue states are incorrigible — $10,500. The credit is, however, capped: Manufacturers can only sell 200,000 vehicles eligible for the full credit. Now almost all manufacturers (including high-end companies Bentley, Aston Martin and Maserati) are entering the electric-vehicle sector, and the cap is impinging on some of them (General Motors, Nissan). So, at long last such vehicles can be allowed to sink or swim on their own, right?
Of course not. The Barrasso-Smith legislation is fiercely opposed by the manufacturers, who of course want to expand and entrench it by removing the cap, partly because they know what the Journal knows: “When Georgia ended its $5,000 state tax credit in 2015, sales of electric vehicles fell 89% in two months.”
Electric cars have cachet with advanced thinkers who want to be, or to be seen to be, environmentally nice. They do not think of such vehicles as 27.4% coal cars, that being the percentage of U.S. electricity generated by coal-fired power plants.
The environmental excuse for the regressive tax credit being nonexistent, those Democratic senators whose presidential campaigns are fueled by fury about government being “rigged” for the benefit of “the rich” who are not paying “their fair share” will join their Wyoming colleague’s attempt to end the electric-vehicle tax credit, if they mean what they say. If.
George Will is a columnist for The Washington Post and can be reached via email.