Briefly, let’s look at a summary of the current federal electric vehicle (EV) tax credit in the United States. The maximum credit is $7,500. However, the EV buyer has to have $7,500 of tax liability to take full advantage of that. If a buyer would owe only $4,000 in taxes, they would get only $4,000. Clearly, that system offers less benefit to someone who makes less money and thus owes less in taxes. Once a 200,000 vehicle milestone is reached — once an automaker sells 200,000 plugin vehicles in the US — the tax credit starts to phase out for people who buy plugin vehicles from that automaker. It’s a somewhat complicated phaseout that takes several quarters, but two automakers passed the milestone so long ago that buyers of their EVs no longer get any tax credit from the federal government at all. Those two automakers are Tesla and GM. Across the board, the tax credit is also set to be eliminated if Congress doesn’t extend it. Now let’s look at how the bill that has moved through the US Senate Finance Committee updates things. (Hat tip to @Not_an_Analyst.)
First of all, yes, the bill extends the tax credit. In fact, the tax credit is extended not just for a year or two, but until electric vehicles hit significant market share in the United States. The tax credit doesn’t start to phase out until the country reaches 50% plugin vehicle market share. Also, there is no manufacturer cap at all*. The phaseout is for all electric vehicles once plugin share of the overall market reaches 50%.
Also, the credit finally solves for the problem of favoring wealthier people with more income. It is a refundable tax credit — if you only owe $3,000 in taxes in the tax year you buy a plugin vehicle, for example, you will then owe $0 in taxes and get a $4,500 refund. However, the max refund is no longer $7,500 either.
In addition to the base $7,500 credit, and extra $2,500 would be available if the vehicle is manufactured in the United States, and another $2,500 is available if the vehicle is union made.
One limiting factor is added as well — the plugin vehicle must have an MSRP of $80,000 or less.
EV tax credit bill from Senate Finance Committee:
$7500 EV tax credit reinstated
+$2500 for 🇺🇸made
+$2500 for union made
REFUNDABLE credit so valuable for everyone
Limit of $80K MSRP
— Not_an_Analyst (@facts_tesla) May 27, 2021
The tax credit improvement is part of a broader climate and clean energy bill, the Clean Energy for America Act. This is a gigantic piece of legislation that will be a core area of focus for the Senate in coming weeks and probably months.
Naturally, this is coming from a Democrat-controlled Senate committee and the Senate as a whole is very thinly in Democratic control. The Senate is split 50–50 at the moment, with Vice President Kamala Harris acting as the tiebreaker when needed. The problem Democrats (and the large majority of the public that supports numerous Democrat-proposed policies) face is that some Democratic senators are quite conservative, essentially even Republican on some topics. Senator Joe Manchin of West Virginia is the most notable swing voter in the US Senate, and some might say the most powerful politician in the country right now. Coming from coal country, he’s not particularly progressive on energy policies. Though, this could be an area where he’s willing to play ball, since it is about electrification from transport, not something damaging to the coal industry.
Senator Ron Wyden of Oregon, Chair of the US Senate Finance Committee, is positive and optimistic publicly — even if he knows the bill will be hacked up or face big challenges getting through Manchin and others.
“Today is a momentous day. For the first time, the Senate Finance Committee has advanced comprehensive clean-energy legislation,” Chair Wyden said. “The American people know the climate crisis is an existential threat and strongly support bold action. The Clean Energy for America Act would both put us on the path to achieve our emissions-reductions goals and help create hundreds of thousands of good-paying, clean-energy jobs. As we move forward with President Biden’s jobs and infrastructure agenda, our bill should be the linchpin of our efforts on clean energy. I look forward to working with my colleagues to finally enact clean-energy legislation to build a better future for our children, both in terms of the climate and economy.”
*The tax credit’s funky design actually has interesting history. It was initially supposed to have an overall cap of 200,000 zero-emissions vehicles, but lobbyists from Plug In America got Congress to adjust that to 200,000 per automaker at the last minute.