State Leaders Admit California Is Subsidizing the Rich at the Expense of the Poor

State Leaders Admit California Is Subsidizing the Rich at the Expense of the Poor

You won’t read this headline anytime soon, but it is consistent with the recent changes to California’s electric-car rebate program enacted by the state’s Air Resources Board.

Both California and the federal government offer generous tax credits to purchasers of electric vehicles. Until the recent changes, California offered purchasers of a qualified electric vehicle a $2,500 tax credit, with lower income families eligible for an additional $2,000 tax credit (a total tax credit of $4,500).

While the policy offers lower-income families a larger tax credit, the problem is that these families do not typically purchase electric vehicles. As we illustrated in our report Costly Subsidies for the Rich the average starting price for the ten electric vehicles with the longest driving range is nearly $42,000. This is nearly double the average price for a new small car, which is around $20,000. The cost of electric cars, even with the tax-credits, is simply too high for lower-income families.

Further, even with the most recent advances, the driving range of electric vehicles is less than the average driving range for a gas-powered vehicle. Lower-income families do not have the luxury to purchase secondary cars that have restricted driving ranges.

This is why upper-income families purchase the vast majority of electric cars. Since it is high-income families that typically purchase electric vehicles, high-income families are also the ones who benefit from the government tax credits.

In Costly Subsidies for the Rich, we estimated that nearly 80 percent of the federal electric vehicle tax credit was claimed by households with incomes exceeding $100,000. The same is obviously true for California’s generous tax credits for purchasing electric vehicles.

While many environmental groups have tried to dispute this fact, the Air Resources Board’s latest change is an acknowledgement that upper-income families are benefiting too much from the tax credit. Now, instead of receiving a $2,500 tax credit, upper-income families will only receive a $2,000 tax credit. The rebate for plug-in hybrids with an electric-battery range of less than 35 miles is completely eliminated for these households too. These changes do not apply to lower-income households, however. These families are still eligible for a $4,500 tax credit, and can even receive a $3,500 tax credit for the plug-in hybrids.

Despite these changes, several problems with the tax credits remain.

First, the tax credit offered to lower-income families does not change the fundamental fact that electric cars are still too expensive and too impractical for families that are struggling to make ends meet. Therefore, the tax credits will still subsidize the rich at the expense of the poor.

Second, despite the arrogance of electric car advocates, electric cars are not “fundamentally better” for most families. If they were, then families would recognize that the value of an electric car is greater than the value of an internal combustion engine (ICE) car and would voluntarily choose to purchase electric cars.

The fact that most families still do not choose to voluntarily purchase electric vehicles is irrefutable evidence that they do not believe that electric cars are fundamentally better. Put differently, consumers do not need to be bribed with tax credits to purchase fundamentally better vehicles.

Of course, simply because electric cars are not fundamentally better today does not mean they will never be. Technology advances and it is possible that the cutting-edge electric vehicles, such as Tesla’s new Cybertruck, will be superior to ICE vehicles for families of all income levels. And, when/if this happens, sales of electric vehicle will soar.

California prides itself as the national, perhaps even global, leader when it comes to clean energy policies. Unfortunately, in practice, California’s policies are harming lower-income families. Recognizing these adverse impacts, instead of reducing the subsidies for high-income families, the Legislature should vote to repeal these credits all together.

Wayne Winegarden is a senior fellow in business and economics at the Pacific Research Institute.

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Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.