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May 21st, 2019

Insight

Concerned that government is rigged in favor of the rich? End this tax credit

George Will

By George Will

Published April 18, 2019

Concerned that government is rigged in favor of the rich? End this tax credit
Some government foolishness has an educational value that compensates for its considerable cost.

Consider the multibillion-dollar federal electric-vehicle tax credit, which efficiently illustrates how government can, with one act, diminish its already-negligible prestige while subtracting from America's fairness.

Sen. John Barrasso, R-Wyo., and Rep. Jason Smith, R-Mo., hope to repeal the tax credit, which probably will survive because it does something that government enjoys doing: It transfers wealth upward by subsidizing affluent individuals and large economic entities.

In 1992, Congress, with its itch to supplant the market in telling people what to build and buy, established a subsidy for buyers of electric vehicles, which then were a negligible fraction of the vehicle market. In 2009, however, as the nation reeled from the Great Recession, the Obama administration acted on an axiom of the president's chief of staff, Rahm Emanuel: "You never want a serious crisis to go to waste."

Using the crisis as an excuse to do what they wanted to do anyway, those who think government planning of the U.S economy is a neat idea joined with environmentalists to persuade Congress -- persuading it to dispense money is not difficult -- to create a tax credit of up to $7,500 for consumers who buy battery-powered electric vehicles.

The tax credit was part of the administration's "stimulus" package, which is most remembered for its promise of "shovel-ready" jobs. The president, too busy expanding the government to understand the consequences of prior expansions, discovered that such jobs are almost nonexistent, thanks to red tape that must be untangled before shovels can be wielded.

The tax credit quickly became another example of the government's solicitousness for those who are comfortable, and who are skillful in defense of their comforts. Today, demand for electric cars is still insufficient to produce manufacturing economies of scale (after a decade of production, moral exhortations and subsidies, electric cars are a fraction of 1% of all vehicle sales), and batteries are expensive.

So, The Wall Street Journal reports, the $42,000 average price for an electric car is $8,000 more than the average price of a new car, and $22,000 more than the average price of a new small gasoline-powered car.

The Pacific Research Institute has examined 2014 IRS data showing that 79% of the electric-vehicle tax credits were collected by households with adjusted gross incomes of more than $100,000, and 1% by households earning less than $50,000. A 2017 survey found that households earning $200,000 received the most from the tax credit.

Some states have augmented the federal credit: In California, where about half of electric vehicles are sold, consumers can gain up to $15,000; in insolvent Connecticut -- blue states are incorrigible -- $10,500. The credit is, however, capped: Manufacturers can only sell 200,000 vehicles eligible for the full credit.

Now almost all manufacturers (including high-end companies Bentley, Aston Martin and Maserati) are entering the electric-vehicle sector, and the cap is impinging on some of them (General Motors, Nissan). So, at long last such vehicles can be allowed to sink or swim on their own, right?

Of course not. The Barrasso-Smith legislation is fiercely opposed by the manufacturers, who of course want to expand and entrench it by removing the cap, partly because they know what the Journal knows: "When Georgia ended its $5,000 state tax credit in 2015, sales of electric vehicles fell 89% in two months."

Electric cars have cachet with advanced thinkers who want to be, or to be seen to be, environmentally nice. They do not think of such vehicles as 27.4% coal cars, that being the percentage of U.S. electricity generated by coal-fired power plants. According to a Manhattan Institute study:

"[B]ecause of stringent emissions standards and low-sulfur gasoline, new ICVs [internal combustion vehicles] today emit very little pollution, and they will emit even less in the future. Compared with new ICVs, ZEVs [zero-emissions vehicles] charged with the forecast mix of electric generation will emit more criteria air pollutants." And the reduction of carbon dioxide -- "less than 1% of total forecast[ed] energy-related U.S. CO2 emissions through 2050" -- "will have no measurable impact on climate."

The environmental excuse for the regressive tax credit being nonexistent, those Democratic senators whose presidential campaigns are fueled by fury about government being "rigged" for the benefit of "the rich" who are not paying "their fair share" will join their Wyoming colleague's attempt to end the electric-vehicle tax credit, if they mean what they say. If.

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