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Tax Break for Electric Vehicles in the Crosshairs

Barrasso: ‘Wealthiest Americans’ benefit at the expense of taxpayers

Tesla vehicles stand outside of a Brooklyn showroom and service center in August. Legislation unveiled Tuesday would end a tax incentive for electric vehicles. (Spencer Platt/Getty Images file photo)
Tesla vehicles stand outside of a Brooklyn showroom and service center in August. Legislation unveiled Tuesday would end a tax incentive for electric vehicles. (Spencer Platt/Getty Images file photo)

The chairman of the Senate Environment and Public Works Committee unveiled legislation Tuesday to end the $7,500 tax incentive for electric vehicles.

The yet-unnumbered bill comes as a United Nations report on climate change, released over the weekend, outlined dire consequences for the planet in the absence of global action to drastically reduce carbon output over the next decade.

The legislation from Sen. John Barrasso, R-Wyo., would also impose “a federal highway user fee on alternative fuel vehicles,” which would then go into the Highway Trust Fund, according to a committee summary. The fee, based on typical fuel taxes paid for similar gas-powered vehicles, would be collected with the vehicle owner’s federal tax return.

“The electric vehicle tax credit largely benefits the wealthiest Americans and costs taxpayers billions of dollars,” Barrasso said in a statement. “My legislation levels the playing field for all drivers across America.”

Federal fuel taxes of 18.4 cents per gallon of gas and 24.4 cents per gallon of diesel are the primary sources of revenue for the Highway Trust Fund. Increasing fuel efficiency and a growing number of electric vehicles on roads have led to declining revenues and the Congressional Budget Office projects the trust fund will run out of money by fiscal 2022.

Fuel Taxes

Efforts to fix the trust fund have largely focused on raising fuel taxes, though some have also proposed transitioning to a different model, including one based on vehicle-miles-traveled. Retiring House Transportation and Infrastructure Chairman Bill Shuster, R-Pa., wrote a bill earlier this year that would raise fuel taxes by 20 to 25 cents per gallon before eliminating fuel taxes in 2028.

Citing reports from the Manhattan Institute, a conservative think tank, the committee estimated that eliminating the tax credit would save an estimated $20 billion over the next decade. The additional highway fees could add “billions” to the trust fund, the committee said.

House Republicans attempted last year to remove the tax credit as part of its tax overhaul measure, but were rebuked by the Senate, which kept the provisions out of the enacted bill. The Joint Committee on Taxation estimated removing the tax credit could result in cost savings of $200 million over the next decade.

The effort is unlikely to gain much Democratic support, and it may even meet divided support among Republicans. Sen. Dean Heller, R-Nev., was rumored to be working on legislation to extend the tax credit, mainly as a way to bolster the electric vehicle industry, led by Palo Alto, Calif.-based Tesla Inc. that has a major manufacturing facility in his state.

The tax incentive has been a major driver of the adoption of electric vehicles. The Electric Drive Transportation Association estimates that more than 700,000 have been sold in the U.S. since 2010.

Senate Democrats, led by Jeff Merkley of Oregon, Martin Heinrich of New Mexico and Catherine Cortez Masto of Nevada, introduced their own electric vehicle-focused legislation in September that would extend the tax credit by 10 years. The bill would also eliminate the federal cap that limits manufacturers to applying the credit to a maximum of 200,000 vehicles, which many domestic companies could hit as early as this year.

Carbon emissions from the transportation sector moved ahead of emissions from the electric power sector as the leading source of the climate-warming greenhouse gases in 2017, according to the Energy Information Administration. European countries like the United Kingdom and France have begun to make dramatic moves away from internal combustion engines, saying they will ban the sale of new gasoline or diesel-powered cars by 2040.


Jacob Fischler contributed to this report.

Correction, Oct. 11, 1 p.m. | An earlier version of this article overstated a prior estimate of savings from repealing a tax credit for electric vehicle buyers.

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