Electric cars currently cost more to buy than gas-powered ones, although they do cost less to own. Tax credits in place help make it easier to put an EV in your driveway by taking thousands of dollars off a vehicle’s MSRP when you file your taxes. Now Democrats are proposing increasing the EV tax credit but only for union-made EVs in the U.S.
The current EV tax credit
The present tax credit for zero-emission vehicles can be up to $7,500. That’s available regardless of where they were assembled or whether union workers were used. The current tax credit applies to plug-in electric vehicles purchased new after December 31, 2009. The EV must have started as an electric vehicle at the factory and have a gross vehicle weight rating (GVWR) less than or equal to 14,000 pounds.
The EV’s electric battery should be rechargeable and have a capacity of not less than 4 kilowatt-hours. The tax credit starts at $2,500 and gets more prominent as the battery size increases, up to $7,500. Currently, the tax credit begins to phase out for any auto manufacturer that has sold more than 200,000 qualifying vehicles after December 31, 2009.
The proposal to increase the tax credit for union-made U.S. EVs
In September 2021, Democrats in the U.S. House of Representatives proposed expanding the existing EV tax credits to $12,500. According to Jalopnik, This would favor the big three automakers: General Motors, Fiat Chrysler Automobiles, and Ford Motor Company. The increased tax credit would be for union-made zero-emissions vehicles assembled in the United States. There would not be a tax credit increase for non-American EVs. The tax credit increase would help meet President Biden’s goal that, by 2030, half of U.S. EV sales will be of vehicles made in the U.S.
There would be some updates to the current tax credit rules. The new bill would eliminate the phasing out of tax credits for auto manufacturers after 200,000 EVs are sold. This means tax credits would be available again for models from Tesla and General Motors. One significant change would be that the credit could be used to reduce the sale price or be claimed when filing taxes later.
The tax credit would now start at $4,000, with an extra $3,500 for EVs with a battery with more than 40 kWh. An additional $4,500 would be available if the final assembly happened at a unionized U.S. plant. The last $500 would be available if more than 50% of components and battery cells were manufactured in the United States. The bill also introduces a $2,500 tax credit for certain used electric vehicles.
The tax credit would only be for EVs costing less than $50,000 for sedans, $64,000 for vans, $69,000 for SUVs, or $74,000 for pickups. The new tax credit would only be available for people making less than $400,000 if single or $800,000 if a couple. If passed, the bill would go into effect for 2022.
Negative reactions from non-union automakers
Not everyone is a fan of the new bill. Non-union automakers like Tesla, Honda, and Toyota have spoken out against this new tax credit bill. The companies would be negatively affected and feel the law would be biased in favor of unionized assembly plants. According to The Drive, Honda and Toyota EVs are eligible for the current $7,500 tax credit, while Tesla EVs are not.
A statement from Toyota reads: “The current Ways and Means Committee draft makes the objective of accelerating the deployment of electrified vehicles secondary to discriminating against American autoworkers based on their choice not to unionize. Toyota will stand strong against proposals that disadvantage one American autoworker over another.”
Honda said the bill was “unfair” and said it “discriminates among EVs made by hard-working American auto workers based simply on whether they belong to a union.”
While the current tax credit is excellent, new legislation proposes making several changes. EV buyers could claim up to $12,500, with $4,500 of that increase specifically for buying an electric vehicle assembled at a unionized American plant.