Senate proposal seeks to expand tax credit limit for electric vehicles


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Democratic lawmakers in the Senate proposed a $369 billion climate-related package last week with renewed support from part-time Sen. Joe Manchin III (D-WV). The bill has the potential to dramatically alter the rate of adoption of electric vehicles in the country, while combating China’s continued stranglehold on various aspects of the electric vehicle supply chain by igniting domestic manufacturing.

The proposal seeks to achieve its goals of combating climate change and growing competition from China by rolling out various tax breaks for individuals and businesses, as well as other significant incentives for businesses that choose to work in America. Specifically for the auto industry, the Senate proposal will see the removal of the current cap on tax credits tied to the sale of electric vehicles. Under current law, taxpayers can file a tax credit of $7,500 for the purchase of an electric vehicle, as long as the automaker has not already sold 200,000 vehicles eligible for the tax credit. These credits apply to both full electric vehicles and plug-in hybrids, which is why automakers Tesla and GM are already running out of credits before the EV revolution really begins. Other big players like Ford and Toyota are not far behind, which could start to cause problems for average consumers. So far, electric vehicles have proven to be vastly more expensive than their internal combustion counterparts, with the tax credit helping to keep vehicles accessible to the middle class. The average price of a new electric vehicle has soared to more than $60,000, according to The New York Times.

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To better address these market pressures, the Senate has also proposed extending these tax credits to sales of used electric vehicles. Specifically, the bill proposes an allocated tax relief of up to $4,000 for any of these purchases. It should be noted, however, that these tax reliefs are somewhat dependent on your income. Individuals earning $150,000 a year or couples earning $300,000 are disqualified for the new car tax break. The used car break is limited to incomes of $75,000, or $150,000 for couples. The government is also not interested in trying to help you buy a luxury item and has put a limit on vehicles with high retail prices. Any sedan that sells for more than $55,000 is ineligible, as are vans, trucks and SUVs with a list price of $80,000 or more. Sorry, no Hummer EV or Lucid Air models for you. The new tax credits will survive at least until 2032 if passed.

The 700-page bill also includes billions of dollars in investments in electric vehicle manufacturing, particularly to help tool and build production facilities here in the United States. The bill heavily favors companies that source their resources and manufacturing capabilities from the United States or our allies, and appears to penalize those that look to China for components or materials. China is never mentioned by name in the bill, but the Biden administration has made no secret of its efforts to put the United States in a position to wean our manufacturing dependence on China. Additionally, the bill appears to disqualify non-North American-made cars from one of the EV sales credits. As Chinese automakers continue to push to enter the US market, this could become important in the near future.

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Other notable elements of the package include financial support for the installation of EV chargers, solar panels and even high-efficiency heat pumps. Big oil companies even get their share of that bill, with additional tax credits levied for carbon capture technology backed by Exxon Mobil. Big Oil can expect even greater access to federal lands and waterways in the future, as leasing options have also been expanded by the bill. That said, the industry will face more scrutiny when it comes to methane leaks, with higher associated costs in the future.

If this bill makes it through the Congressional process, it could truly help American consumers during this transition period. This is especially true after all the production disruptions we have experienced over the past few years and the resulting volatility in the sales market. Hopefully we don’t see automakers finding ways to fight these price caps for tax credits, but chances are it’s more common than we’d like. That said, second-hand EV credit is particularly attractive. Do these proposed tax credits change your mind about a future EV purchase? Let us know below.

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