Subsidize My Electric Car, Please
By: The Editorial Board
Sept. 2, 2019
Wall Street Journal
The great myth of political subsidies for business is that they will help an industry get started and then go away. We’ll soon see if Congress can for once live up to its temporary promise and block the emerging effort to continue subsidizing the affluent to buy electric cars.
Wyoming Republican John Barrasso is circulating a letter asking Senate Leader Mitch McConnell to reject an expansion or extension of the electric-vehicle tax credit. The federal government currently provides a $7,500 consumer tax break for an auto maker’s first 200,000 cars. The tax credit then drops by half for EVs sold over the next six months, and by half again for another six months. It then disappears.
Washington has been underwriting EVs for nearly 30 years, which is a long time for an infant industry. The current EV handout was part of the 2009 Obama “stimulus,” and its backers promised it would be temporary. But Tesla and General Motors hit 200,000 in sales last year, and Nissan, Ford and Toyota are well on their way. With the phaseout approaching, auto makers and environmental groups are now begging Congress for an extension.
They’re floating a bill from car-state Senators Debbie Stabenow (D., Mich.) and Lamar Alexander (R., Tenn.) that would extend a $7,000 buyer tax credit for another 400,000 cars once auto makers hit the 200,000 limit. An Ernst & Young study estimates the expansion would cost taxpayers nearly $16 billion over the next decade.
It’s hard to imagine a more blatant income transfer for the well-to-do. Electric cars are significantly more expensive than the average vehicle, with a starting price of around $36,000. A recent Congressional Research Service study found that nearly 80% of the credits were claimed by households with adjusted gross income of more than $100,000. Sales data show that about half of all electric vehicle sales occur in one state—California.
That’s not surprising since California sets quotas for electric-vehicle sales. For years auto makers complained that California’s EV mandate forced them to sell cars below cost. The Trump Administration has proposed relaxing the Obama-era fuel economy standards and rescinding California’s Clean Air Act waiver that require manufacturers to ratchet up electric car production.
Yet auto makers are resisting the Trump Administration’s regulatory liberation. California has threatened to sue to enforce its own rules, and BMW , Ford, Honda and Volkswagen cut a deal with the state that would preserve the state’s EV quotas. Governor Gavin Newsom is pressuring other auto makers to jump on board.
Auto makers say federal subsidies are necessary to help them comply with California’s EV mandate, which a dozen or so other states have adopted. But then why shouldn’t these states pick up the subsidy tab to fulfill the mandates that they are imposing?
By the way, CEO Elon Musk had been saying not too long ago that his competitors want the subsidies while Tesla doesn’t need them. But Tesla’s sales fell as the tax-credit phaseout hit, and he’s now joined the special pleading for a subsidy expansion. None of this will have the slightest impact on the climate.
Mr. Alexander and Maine’s Susan Collins are so far the only Republican co-sponsors on the EV bill. But supporters are hoping to add the subsidy expansion to other legislation this fall when few people are watching. Senator Barrasso is sounding the alarm and hoping to attract enough opponents to make clear the subterfuge can’t pass the Senate.