Multiple bills in Congress could help the average Joe get into an EV
The 13-year-old Plug-in Electric Drive Tax Credit for fully electric and plug-in hybrid vehicles has been given a number of potential overhauls in Congress as part of larger spending bills. As it stands, the current tax credit maxes out at $7,500, which means certain EV and PHEV buyers can reduce their tax burden if they owe the federal government that amount or more. If the buyer only owes the government $2,000, then $2,000 is the credit they get for the EV — the buyer doesn't get a $5,500 tax refund check. Furthermore, the credit begins a quarterly phase-out for automakers that have sold 200,000 qualifying vehicles. GM, counted as one automaker instead of having its brands considered separately, has passed the threshold, as has Tesla. These provisions reward only those who make enough to owe the government money, arguably punish the most popular electric vehicle makers for selling more units, and only apply to new cars. Two rewritten tax credits inching through both houses of Congress want to change all of that.
Two new credits were introduced earlier this year in the House of Representatives as part of the Growing Renewable Energy and Efficiency Now (GREEN) Act, one that would apply to new EVs and one applying to used EVs. It lowered the maximum credit for new EVs to $7,000, but raised the OEM sales eligibility quota to 600,000 units. It also offered a $2,500 tax credit on used EVs that were at least two years old at the time of sale. That effort didn't get far.
But two senators picked up those threads and reworked them for inclusion into a climate and clean energy bill called the Clean Energy for America Act. This version of the tax credits retained incentives for new and used cars, changing almost everything else on the new vehicle side. What's new is that the credit maxes out at $12,500 if other qualifications are met; there's the $7,500 base credit available now, plus another $2,500 available if the EV is manufactured in the United States, and another $2,500 available if that manufacturing plant uses unionized labor or is represented by a union. This provision throws out the 200,000-unit cap. Instead, the discounts don't start phasing out until EVs and PHEVs account for 50% of annual U.S. light-duty vehicle sales. Last year, that figure was 4.2% of the market.
Finally, the credit for new vehicles can't be applied to an EV that costs more than $80,000 — the current version doesn't set a limit — and it cannot be worth more than 30% of the vehicle's value. Perhaps the biggest change is that this will be a refundable credit against taxes owed. If a vehicle qualifies for the full $12.500 credit but the buyer only owes $1,500 in federal taxes, the buyer gets a refund check for $11,000.
For used vehicles, the credit provides the $2,500 incentive for EVs at least two years old. The bill passed a Senate Finance Committee vote along party lines, 14 Democrats in favor and 14 Republicans against. Since it's part of that larger bill that will need a lot of wrangling to pass, and the bill contains cuts to fossil fuel tax incentives that displease many members of Congress, we're a long way from knowing if these tax credits will pass as written.
That's why, separately, a senator and a representative introduced the Affordable EVs for Working Families Act at the end of July. This freestanding measure focuses only on used EVs. It keeps the $2,500 credit for EVs that are at least two years old and cost no more than $25,000, and is only available to independent shoppers, not dealers. Such buyers would only be allowed to take advantage of the credit once every three years, and the credit declines for buyers whose adjusted gross income is greater than $75,000 individually or $150,00 for joint filers. The Working Families Act has a better chance of passing than the above measure because it wouldn't need to wait for a larger, more contentious bill to pass, and several states already offer such incentives for used EVs.
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