skip to main content

S. 3582 (115th): A bill to amend the Internal Revenue Code of 1986 to establish a new phaseout of the credit for plug-in electric drive motor vehicles.


How much money should a customer get for buying a Tesla or similar car?

Context

Anybody who purchases an electric vehicle can receive a $7,500 federal tax credit. The most famous electric vehicles are produced by Telsa, the company founded by Elon Musk.

However, that tax credit is cut in half to $3,750 and then again shortly thereafter to $1,875 once an automaker has sold 200 thousand vehicles in the U.S. The provision was started in 2010 during the Obama Administration, intended to help smaller companies get off the ground but not unnecessarily help companies that are already large and successful.

Tesla sold its 200 thousandth electric vehicle in July, meaning that starting in January their products will no longer be eligible for the full tax credit.

What the bill does

New legislation would would eliminate the sales cap for the $7,500 tax credit immediately, but starting in 2022 would begin to phase out the tax credit for all automakers regardless of size or sales.

In the short term that would help Tesla, as well as other large automakers focusing more on their electric vehicles such as General Motors and Nissan. (General Motors is expected to reach the 200 thousand electric vehicle sales mark before year’s end.)

In the long term, it would also help such large companies, by no longer incentivizing consumers to purchase electric cars from smaller companies with whom they could receive bigger tax credits.

The legislation was introduced in the House as H.R. 7065 by Rep. Diane Black (R-TN6), and in the Senate as S. 3582 by Sen. Dean Heller (R-NV).

What supporters say

Supporters argue that the current tax credit not only primarily goes to the rich, but that it raises electricity and energy prices for the middle class and poor.

Importantly, the fuel for electric vehicles is not free. As demand for electric vehicles increases as a result of the lower up-front subsidized price, so does the demand for electricity,” Nicholas Loris writes for the conservative Daily Signal. “New research from the National Economic Research Associates shows that American households would, in fact, be worse off both as taxpayers and electricity consumers.”

“The indirect costs are particularly burdensome on lower- and fixed-income families who can’t afford electric vehicles and take advantage of the subsidies,” Loris continues. “Instead, the benefits of these subsidies accrue to America’s wealthiest households, which can also afford an electric vehicle without the subsidy.”

“This is borne out by data. The Pacific Research Institute found that in 2014, 79 percent of electric vehicle tax credits went to households making over $100,000, while 99 percent of them went to households making at least $50,000.”

Curiously, neither Sen. Heller’s nor Rep. Black’s offices appear to have put out press releases advocating for their bills — a highly unusual move, since almost every bill comes with an accompanying press release.

What opponents say

Opponents counter that the electric vehicle tax credit is good for both customers’ finances and for the environment.

“It’s crazy that we might allow the electric vehicle tax credit to run out just as the American EV market is starting to gain a foothold,” Sen. Jeff Merkley (D-OR), who has sponsored a competing bill which would extend the tax credit for another decade, said in a press release.

“Every day, we see the effects of climate chaos all around us — record-setting droughts, out-of-control wildfires, destructive mega-storms, and spreading insects and ocean acidification,” Merkley continued. “ Market-based incentives that help EVs compete with gas-powered cars are not only good for our economy, they’re essential to our future.”

Odds of passage

The House version has two cosponsors, both Republicans. It awaits a potential vote in the House Ways and Means Committee.

The Senate version has no cosponsors yet. It awaits a potential vote in the Senate Finance Committee.

Telsa and General Motors, two companies with much political and cultural might, are both lobbying Congress to get this (or similar legislation) to pass.

Last updated Oct 23, 2018. View all GovTrack summaries.

The summary below was written by the Congressional Research Service, which is a nonpartisan division of the Library of Congress, and was published on Oct 11, 2018.


This bill amends the Internal Revenue Code, with respect to the tax credit for new plug-in electric drive motor vehicles, to change the phase-out period for the credit to calendar year 2022.

(Under current law, the credit phases out for a manufacturer's vehicles over the one-year period beginning with the second calendar quarter after the calendar quarter in which at least 200,000 qualifying vehicles manufactured by that manufacturer have been sold for use in the United States after December 31, 2009.)