That proposed tax plan would kill the $7,500 electric vehicle credit

The tax plan proposed by House Republican has hiding in it the repeal of a $7,500 tax credit that has arguably been one of the main drivers of electric vehicle purchases. Removing the credit would almost certainly adversely affect sale of electric cars just as they are beginning to get affordable to the general public.

You can see the text of the proposed tax plan here; the relevant section is under Segment 1102 😛 TAGEND

REPEAL OF SECTION 30 D. — In General .– Subpart B of part IV of subchapter A of chapter 1 is amended by striking segment 30 D( and by striking the item relating to such segment in the table of segments for such subpart.

Quite clear, isn’t it! Section 30 D is the part of the Internal Revenue Code that offers a credit to purchasers of qualifying electric cars. Presuming the credit has been used in the case of buy of most electric cars, it has saved taxpayers around a billion dollars since it took effect in 2010.

One could argue that $7,500 isn’t going to induce much difference when a fully loaded Model S pushes a hundred grand, but it has certainly helped those vehicles become competitive at the same costs as other luxury vehicles. And cheaper alternatives like the Leaf would likely never have taken off if they sold for their full price of around $40 K rather than being closer to $30 K.

While the tax plan would eliminate the credit, it’s possible it might have run out of steam on its own within a year or two, at least for Tesla buyers. The full credit only applies to the first 200,000 qualifying electric vehicles from a devoted manufacturer, starting in 2010. Tesla has gone through more than 120,000 of those( again if we assume everyone claimed the credit ), and plans to sell 10,000 automobiles a month would finish off its allotment with a quickness.( It would then enter a phase-out period with a partial credit over a period of months; this wouldn’t happen if the entire credit was eliminated .)

GM and Nissan are comparably far off from that 200,000 figure( though no doubt there is a desire to they were closer to it ), but with plans to push electrics hard over the next decade, it would definitely figure into their calculations.

Effectively raising the price of electric cars by $7,500 would, of course, chill marketings. States have their own credits, but they’re smaller and may also be more short term. The federal credit is the big one and one that manufacturers could rely on when juggling pricing, trim and other factors.

Should the credit be eliminated and 50,000 people buy electric cars in this country next year, that they are able to equate to $375 million in the coffers. Sounds nice, but if the phase of the cuts is to get money back to taxpayers, and taxpayers were using this credit, it aims up being a net negative for them. And meanwhile, the electric car industry, specifically big investors like Tesla and GM, takes huge losses as marketings plummet. The short-term gain turns into a long-term loss as American manufacturing suffers and companies stop investing in the next decade and starts tightening its belt.

At least, that’s one possible outcome. Perhaps this is part of the many parts of the tax code that will be revised in the coming “knife fight, ” as I hear the negotiations regarding the proposal referred to earlier today. You can be sure that the car industry has dedicated some of its immense resources to accomplishing this particular change.

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