We should be done with the electric car tax credits

For the past eight years, the government has been shelling out money to offset part of the cost of buying electric vehicles. This is an artifact from the Obama administration and it was supposed to help the climate by encouraging people to move away from gas-powered engines. But the tax credits will be expiring in many cases next year and the question now is whether Congress plans to renew this taxpayer-funded giveaway. Forbes explored the issue last month, weighing some of the pros and cons.

One-time federal tax credits of between $3,500 and $7,500 were enacted in 2010 to help spur sales of plug-in vehicles, which was then a priority for the Obama administration. The incentives helped the industry register sales of 34,000 electrified rides over the first 10 months of 2018, according to InsideEVs.com, which represents a 58% boost over the same period in 2017.

But the credits are not permanent, and are scheduled to phase out during the calendar year after an automaker sells 200,000 full electric (EV) and/or plug-in hybrid (PHEV) vehicles…

Critics argue that eliminating the tax credit based on sales essentially penalizes automakers that were at the forefront of EV development and invested heavily in the technology early in the game. Not surprisingly, GM and Tesla have lobbied Congress to extend the federal tax credits, with bills both for and against the electric vehicle tax credits being subsequently proposed.

This should really be an easy call from a number of angles. First and foremost, targeted tax credits which wind up only helping specific companies or market sectors represent a distortion of the free market and are inherently counter to the concept of capitalism. A product or service which is valued by the consumers should be able to stand on its own without the government picking winners and losers.

Congress should also consider who is primarily benefitting from this scheme. These credits have been going, in large part, to people who can afford to buy a Tesla. (Tesla has thus far sold more than 200,000 electric and hybrid vehicles, the threshold where the credits begin to draw down.) That’s not exactly your average Joe on the street.

The argument about these cars reducing emissions is partially valid, but it’s oversold. Vehicle emission standards are far tighter than they were back in the 70s and 80s, but the stuff coming out of cars’ tailpipes is still a concern. But environmentalists are at least somewhat off the mark in claiming that electric cars are anywhere near carbon neutral. That electricity making them go has to come from somewhere. If you’re in a state that generates a significant amount of power through nuclear and wind the argument carries some weight. But in the many states where electricity is generated by coal or (increasingly) natural gas, something is still getting burned to power up your car.

These tax credits have been a sweet deal for a relatively small number of people and a few companies, but that’s about it. Meanwhile, it’s going to cost us a minimum of $7.5B over the next four years, with some estimate running up past $20B by 2028. Congrss should let these credits die a natural death and let Tesla and GM find their own market for their products if the public actually wants them.