By Tim Anaya and Wayne Winegarden
As they furiously work to jam the Inflation Reduction Act through Congress, congressional Democrats are acting like the family of mice living in fear of a cat. They continually propose grand solutions that, just like the mice’s chances of putting a bell on the cat, are simply unachievable.
The misnamed Inflation Reduction Act, doubles down on Democrats’ pursuit of ever-more taxpayer-funded subsidies for electric vehicle purchases.
According to the New York Times, the plan “would invest nearly $400 billion in tax credits aimed at steering consumers to electric vehicles,” among other green priorities. Supporters say the bill would “put the Biden administration in striking distance of meeting its goal of cutting emissions roughly in half by 2030.”
But would it really? A report from the nonpartisan Congressional Budget Office (CBO) on the bill’s likely economic impact suggests otherwise. According to Reuters, CBO estimates that the electric vehicle tax credits “would cost taxpayers only $85 million in 2023, the equivalent of about 11,000 vehicles if all received $7,500 credits.”
Between 2022 and 2026, it is estimated the government would spend roughly $1.8 billion on subsidies for new electric vehicles – for a total of about 237,000 cars over a four-year period. In addition, the bill gives a $4,000 credit for buying a used electric vehicle, which the CEBO estimates would cost $1.35 billion over 10 years, for a total of about 337,000 vehicles over that period.
Why so few? Politico reports that to get the bill through Congress, “lawmakers had to agree that electric vehicles should be made with North American parts and minerals, even though it would rely on a U.S. supply chain that is in its infancy.” The requirements to get the tax credits in the bill are “so tough that no electric vehicle on the market would qualify.”
It’s further proof that the provisions of the Manchin bill are more of what PRI has called “costly subsidies for the rich.” Our 2018 study, which drew national attention and continues to drive the debate over electric car subsidies, showed that 79 percent of tax credits are claimed by households making more than $100,000 per year.
According to the latest figures, the average price of a new electric vehicle was $54,000 in May, a 22 percent year-over-year increase.
Are working class Americans, who are already saddled with record prices at the grocery and retail stores and expensive home energy burdens in states like California with costly government energy mandates in place – really going to be lining up to by $50,000 new electric vehicles, even with the promise of a $7,500 tax credit from Uncle Sam?
The answer – at a time of record inflation and as America is likely in a recession – is surely no.
While the Manchin bill wisely includes “new income qualifications and sticker price limits ($80,000 for trucks and $55,000 for sedans) to ensure the incentives are directed to mass-market customers” according to Axios, it is upper income households below the income threshold who are the only ones who could potentially benefit from these credits in these tough economic times.
Not only will $430 billion in new government spending and $740 billion in higher taxes not be doing much to help to expand the number of electric vehicle owners or reduce emissions, it certainly won’t be doing much at all to help with the bill’s stated goals – reducing inflation.
Tim Anaya is PRI’s senior director of communications and the Sacramento office. Dr. Wayne Winegarden is a senior fellow in business and economics at the Pacific Research Institute.