This Tax Day, End the EV Tax Credit

Tax Day is here, and that means higher costs and more rules for taxpayers. There are already more than 7 million words of Internal Revenue Service (IRS) tax regulations and 60,000 pages of tax case law. A large chunk of that complexity reflects lawmakers and the IRS picking winners from losers and showering tax subsidies on darling industries.

For example, electric vehicles (EVs) are eligible for a maximum $7,500 tax credit even though most EV buyers earn six figures. It was only a matter of time before the EV tax credit program morphed into a vehicle for protectionism, bolstered by a complicated maze of IRS regulations. These new EV tax regulations, which go into effect on April 18, demonstrate the futility of federal attempts to shore up its industries of choice. The Biden administration and lawmakers must pump the breaks on the failed EV program and run crony capitalists off the road.

According to President Biden, there’s a “historic manufacturing boom” happening in America thanks to the administration’s significant subsidization of EVs. In 2022, the chief executive declared, “[t]hanks to American ingenuity, American engineers, American autoworkers… if you want an electric vehicle with a long range, you can buy one made in America.” The problem is that “made in America” requirements are taking an already expensive product and making it even more expensive. Kelley Blue Book estimates that the average price of a new EV is more than $65,000, compared to $48,000 for gas-powered cars.

And now that EVs must undergo “final assembly in North America,” prices are set to significantly increase. The new tax credit rules anticipate these price hikes and give wealthier consumers the means to make these costly purchases. Sport utility vehicles and pickup trucks are eligible for the revamped tax credit if the manufacturer suggested retail price (MSRP) is less than $80,000. Buyers of these bougie vehicles can earn well into the six figures and still get their hands on taxpayer dollars. For married couples filing jointly, the new income limit is $300,000. “Heads of households” can earn up to $225,000 and still qualify for the tax credit.

It’s reasonable to ask why the Biden administration and lawmakers couldn’t set lower MSRP limits or income cut-offs below six-figure salaries. The sobering answer is that EVs simply are not designed nor priced with middle-class consumers in mind. Despite years of promises that EV prices would be on par with conventional cars, battery costs continue to soar due to rising raw material and battery component prices. With average EV prices $17,000 higher than their gas-powered counterparts, even the most lavish tax credits won’t spur struggling households to purchase these cars. The new, complicated sourcing requirements are just the cherry on top of a bank breaking boondoggle.

Policymakers often justify these handouts to the rich by touting the environmental benefits. But, the mining required to create the lithium-ion batteries used in electric vehicles carries immense environmental costs. According to a recent report by the University of California, “[l]arge-scale mining entails social and environmental harm, in many cases irreversibly damaging landscapes without the consent of affected communities.” An American transition to a mostly EV car market would require three times more lithium in production, endangering communities and ecosystems across the globe. Meanwhile, increased reliance on cobalt risks further destabilizing the Congo, where “small-scale mining…involves people of all ages, including children, obligated to work under harsh conditions. Of the 255,000 Congolese mining for cobalt, 40,000 are children, some as young as six years.”

Keeping tax dollars flowing to EV production only worsens these conditions, while subsidizing some of the richest members of society. It’s time to end the EV tax credit for good, instead of tethering it to bureaucratic requirements that raise costs even more. Tax Day should mark an end, not a turbo boost, to Uncle Sam’s failed EV policies.