Rich People Benefit More From Tax Credits (Duh)

I’ve always found it a little fucked up that US federal incentives for solar energy and electric cars are tax credits. I’m sure there are some arguments for this, but a simple cash rebate (like California offers) would be much more useful for the majority of people.

In the case of the $7,500 federal tax credit for EVs, you have to take the full credit in one year, so if you don’t owe at least $7,500 in taxes, you’re out of luck.

electric vehicle tax credit

“A working paper by a team at the Energy Institute at Haas, University of California, Berkeley, has found that 60% of the $18 billion in US federal income clean energy tax credits issued between 2006 and 2012—e.g., for weatherizing homes, installing solar panels, and buying hybrid and electric vehicles—went to the top income quintile in the US (above $200,000 per year),” Green Car Congress writes. “The bottom three quintiles (up to $75,000 per year) received about 10%.”

Seriously, what is so hard about providing the middle class and poor with better incentives to go green? In actuality, these would be the populations that would most benefit from fuel savings, electricity savings, and cleaner cars. Alas, Congress is not made of the middle class, let alone the poor. For the rich, by the rich, of the rich.

Given that this is a transportation site, I should emphasize the transportation-related findings, and they are actually the worst. “The most extreme case, Severin Borenstein and Lucas Davis found through their examination of tax return data from the IRS, is the program aimed at electric vehicles—the top income quintile received about 90% of all these credits. As a result of the work, Borenstein and Davis conclude that tax credits are likely to be much less attractive on distributional grounds than market mechanisms to reduce GHGs.”

Let’s also remember, though, that the rich are much more likely to buy a new car (rather than a used car) and to have a garage, where charging is most convenient. However, there are plenty of other ways he government could have incentivized (and still could incentive) a switch to EVs: electric carsharing subsidies, incentives for used as well as new cars, tiered rebates (or credits) that help lower-income populations more, taxes on new gasmobiles, or a carbon tax.


 

Other reasons for the lopsided use of tax credits for EVs were discussed in the paper as well.

The PEDVC is much more concentrated than the other categories of credits. The bottom 80% of filers receive a little more than 10% of all credits, and the bottom 90% of filers receive only about 40% of all credits. It may simply be that electric vehicles, for the moment, are only affordable for relatively rich households. Even after the credit, electric and plug-in electric drive vehicles are expensive compared to equivalently-sized gasoline-powered vehicles. Another possible explanation is that in “green” communities (which tend to be high income), driving an electric vehicle could be perceived as a symbol of status. Kahn (2007) makes this argument about hybrids, but over the last several years this probably applies better to electric vehicles.

The authors of the report, Borenstein and Davis, argued in favor of a more equitable carbon tax.

It would seem difficult, therefore, to prefer tax credits over a carbon tax on distributional grounds. There may well be political considerations that continue to favor tax credits, but this approach comes at real cost, both in terms of efficiency and equity.

Well, yes, a carbon tax has been out of the question thanks to too many illogical and hostile Republican congresspeople opposing action to save human civilization. On top of that, they aren’t going to concern themselves much about a more equitable approach, since they typically aren’t fond of fighting for the less advantaged anyway. So, for the moment, the best we have are tex credits.

Still, I think some of those other options I noted above are viable and would help to even out the benefits a bit — electric carsharing subsidies, incentives for used as well as new cars, and tiered rebates (or credits) that help lower-income populations more. If you’ve got an avenue to affect change, see if you can work some magic.

 

Zachary Shahan

is the director of CleanTechnica, the most popular cleantech-focused website in the world, and Planetsave, a world-leading green and science news site. He has been covering green news of various sorts since 2008, and he has been especially focused on solar energy, electric vehicles, and wind energy since 2009. Aside from his work on CleanTechnica and Planetsave, he's the founder and director of Solar Love, EV Obsession, and Bikocity. To connect with Zach on some of your favorite social networks, go to ZacharyShahan.com and click on the relevant buttons.