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Republican Tax Plan Kills Electric Vehicle Credit (arstechnica.com)
An anonymous reader quotes a report from Ars Technica: The nascent market for electric cars will suffer a big setback if the Republican tax plan released on Thursday enters into law. Among the changes to the current tax code would be an end to the Plug-In Electric Drive Vehicle Credit. That's the tax incentive that currently means up to $7,500 back from the IRS when you purchase a new battery or plug-in hybrid electric vehicle. Since the start of 2010, the EV tax credit has been $2,500 for a plug-in vehicle with at least 5kWh battery capacity. Every extra kWh nets another $417 up to a maximum of $7,500, although you would need at least that amount in income tax liability -- the IRS won't cut you a check to make up the full amount. It was never meant to be permanent; once an automaker sells 200,000 qualifying vehicles (starting from January 1, 2010) its eligibility is phased out over a matter of months. But in the almost seven years since, no one has reached that limit yet. Tesla will almost certainly be first, with General Motors not far behind; between them, they've sold a lot of Model Ses and Chevrolet Volts. If this tax plan is enacted, it will surely mean pain for both companies, as well as anyone else hoping to sell a lot of EVs here in the U.S. The data is pretty clear -- tax incentives sell electric cars, and the market for EVs can dry up very fast when they're abolished, as Georgia's recent experience shows.
Among the changes to the current tax code would be an end to the Plug-In Electric Drive Vehicle Credit.
I can't say that I disagree. However, I would really like to see an end to agrictulture subsidies. While electric vehicle tax credits will probably have a net long-term impact on the environment, agriculture subsidies just smack of make-work.
It's interesting that Tesla cars are currently the most "American-made" of any of the American car manufacturers, and these tax credits helped drive Tesla's success. Guess Trump's "Buy American" mantra only applies to subsidies to coal miners.
Considering the high cost of these vehicles (especially Teslas), the effect of the current subsidy system is to transfer tax dollars to the already well-off. There are no middle or low-income families that drive these vehicles, only upper-class. And especially with the Teslas, these vehicles are not only a form of transportation, but also status symbols.
(Full disclosure: I got about $2000 when I bought a Prius back in 2005 or so. Perhaps I'm a hypocrite, but the subsidy made a bit more sense for Priuses as they helped close the gap in price between them and equivalent cars, like a Civic or Camry or Taurus. But subsidizing $75,000 cars for the upper class makes no sense)
Tax credit is not what you "get back". Tax credit is just a deduction from your income to get into a lower tax bracket.
No, that's wrong too.
A deduction reduces your taxable income before you calculate taxed owed on that income.
A tax credit is a credit against taxes owed, after you have calculated taxes on your taxable income. The cretit may be refundable (you get all of it) or non-refundable (you get no more than the amount to zero-out your tax liability.)
If it weren't for deadlines, nothing would be late.
I can agree on that when it comes to Tesla's S/X models... but what about the Leaf, Volt, Bolt, and other "cheap" electric vehicles? Those are far from status symbols, and the people that drive them are definitely not upper-class.
Maybe it would make sense to continue to offer subsidies on cars priced below, say $40K, and then scale it down or outright remove it for higher priced vehicles.
Never underestimate the bandwidth of a 747 filled with CD-ROMs.
the effect of the current subsidy system is to transfer tax dollars to the already well-off.
Of all the things wrong with a subsidy, this is the least problematic for the electric vehicle subsidy. By your logic, the people receiving the subsidy are those who actually pay federal income taxes. Remember, the bottom 50% of wage earners have effectively no federal income tax burden. So, this isn't a wealth transfer to the wealthy. At worst, it is a discount on the taxes that they are actually paying.
The real problem I see with subsidies like this is that they tend to artificially raise the price of the product being subsidized. This happens with college tuition, agricultural produce, and even happened with low end fuel-efficient cars during the cash for clunkers program.
The real problem for subsidies is that they create a market distortion. There are certain limited occassions where that sort of thing makes sense and electric cars, even those which only the "well off" can afford might be one of the few good occassions, owing to the potential long term environmental benefit. I would rather the market function well without government interference, but there is still a way to go until electric vehicles become truly cost competitive.
As others have said, the credit disproportionately benefits people who (1) are in higher tax brackets (wealthy people), and (2) those who can afford electric vehicles (also wealthy people).
What we should be doing instead is to charge the full societal cost of gasoline consumption (up to $1,000 per person per year) and adding that to the price of gasoline. Then people will naturally switch to electric vehicles, no subsidies or government social engineering necessary.
Of course, we also need to charge drivers the full cost of the roads, up from less than half (who says Republicans oppose welfare?); and abolish laws that show favoritism toward Big Oil such as those that force developers to build more parking than the market wants, but that's a different topic of discussion.
Any sufficiently unpopular but cohesive argument is indistinguishable from trolling.
Contrary to what the summary implies, it's not a $7500 check from the IRS. It's a tax credit. You have to owe at least $7500 in taxes in order to take full advantage of the $7500 tax credit. If you owe less, you don't get the full credit.
Looking at the IRS tax stats for 2015, column U (average total income tax paid), the $50k-$75k bracket paid an average of $5341 in income tax, the $75k-$100k bracket paid an average of $8430 in income tax. So you had to have an income of about $75k+ to claim the full $7500 tax credit. Not exactly upper class, but definitely upper middle class. Looking at the number of returns in each income bracket, pretty much only the top 25% of incomes qualified for the full $7500.
People in the bottom 75% usually got less than $7500 even if they bought a qualifying EV. And low-income people who typically pay little to no income tax, even if they somehow managed to buy an EV (a lease would qualify you for the credit) got next to nothing. I'm actually not sure how this $7500 tax credit lasted this long. Conservatives should've hated it because it was a massive government subsidy. Liberals should've hated it because it was horribly regressive.