By on February 28, 2014

2014-Chevrolet-Volt-003-medium

Earlier this week Representative Dave Camp (R-MI), Chairman of the House Committee on Ways and Means, released the Tax Reform Act of 2014. This proposal would make sweeping changes to a very long and complex U.S. tax code. Included in the proposal was a provision to repeal the tax credit for new qualified plug-in electric drive motor vehicles, known as Internal Revenue Code Section 30D or IRC 30D. Or as most of us know it “the $7,500 EV credit.”

Provision:

Sec. 1308. Repeal of credit for new qualified plug-in electric drive motor vehicles.

Current law: Under current law, a taxpayer may claim a credit for each qualified plug-in electric-drive motor vehicle placed in service. A qualified plug-in electric-drive motor vehicle is a motor vehicle that has at least four wheels, is manufactured for use on public roads, meets certain emissions standards (except for certain heavy vehicles), draws propulsion using a traction battery with at least four kilowatt hours of capacity, and is capable of being recharged from an external source of electricity.

For plug-in electric drive vehicles acquired after 2009, the maximum credit is capped at $7,500 regardless of vehicle weight. In addition, after that date, no credit is available for low speed plug-in vehicles or for plug-in vehicles weighing 14,000 pounds or more.

After 2009, the 250,000 total plug-in vehicle limitations are replaced with a 200,000 plug-in vehicles per manufacturer limitation. Under the new limitation, the credit phases out over four calendar quarters beginning in the second calendar quarter following the quarter in which the manufacturer limit is reached.

Provision: Under the provision, the credit for new qualified plug-in drive vehicles would be repealed. The provision would be effective for vehicles acquired after 2014.

JCT estimate: According to JCT, the provision would increase revenues by $5.0 billion over 2014-2023.

Cost Savings Estimate (in billions):

Screen Shot 2014-02-27 at 9.27.44 PM

This isn’t the first time the House attempted to repeal IRC 30D.

Just last January Mike Pompeo, a Kansas Republican, introduced HR 259, a bill that would have also repealed various energy tax incentives to include IRC 30D. But unlike HR 259, which didn’t garner much support, the Tax Reform Act of 2014 is a larger package and one whose passage will likely be celebrated during campaign events later this fall.

While the Camp proposal will change as it works its way through the committees in the House, it’ll be interesting to see if the repeal of 30D sticks. I think it’ll stick, but enactment would take many stars lining up just right.

Camp is from Michigan

First, the Chairman of the Committee, and author of this proposal, is from Michigan. Here members of Congress are expected to fall on their sword for anything that is ‘good’ for automotive. Clearly that message didn’t travel far enough North to reach Representative Camp’s office.

Your tax dollars subsidize rich people’s cars

Should this single provision spiral into its own public debate in the House, I could see members of Congress walking onto the House floor holding poster boards highlighting the cost of EVs like the Tesla Model S, asking ‘the American people’ why government is subsidizing luxury cars for the wealthy.

If the provisions make it through the House, they still face (bipartisan) opposition in the Senate.

Last December Senator Max Baucus, while still Chairman of Senate Finance Committee, released an energy tax reform plan that included a repeal of, you guessed it, IRC 30D. While Senator Baucus is no longer in the Senate (he’s now Ambassador to China), the committee released a cordial statement thanking Representative Camp for his work on the Tax Reform Act and that they looked forward to working with the House on this effort.

That means it’s likely tax reform of some sort could pass both chambers.  Even so that doesn’t mean IRC 30D will be repealed.

The Senate is filled with staunch supporters of green energy incentives, namely Senators from California, Oregon and Michigan. But support for IRC 30D could cross party lines too. Take Senator Bob Corker of Tennessee. When he isn’t warring with the UAW, he speaks highly of the Nissan Leaf, a car built in his state and one that benefits from IRC 30D. I imagine any automaker that benefits from these tax incentives will be very vocal on this issue. Then again there are larger long-term corporate tax benefits that could outweigh a fight over a small item like a plug-in incentive. That is something to consider as well.

The wild card for me is the White House. In his first term President Obama set a goal of one million electric cars. That seems to have been set aside as the Administration is including incentives for natural gas vehicles and other forms of vehicle vaporware/technology (coughing – fuel cells). I’m undecided if the White House will take a backseat on fighting any repeal of green energy incentives, assuming there are greater gains to be had in a larger tax reform package.

It’s also important to keep in mind that earlier this week President Obama released a “vision” of a 4-year transportation plan with a price tag of $302B, $150B of which would come from a one-time revenue transfer from ‘pro-growth’ tax reform. The Camp proposal in the House would allocate $120-125B to the Highway Trust Fund. While the President’s vision lacks details, Camp’s proposal makes me believe that the Republican-lead House may not be on the same exact sheet of music, they’re at least playing a similar song.

Many questions remain – particularly as it relates to timing of the highway reauthorization, which expires in September. To have all of this play out in harmony Congress would have to move a tax reform package that is sure to stir every association registered in America, through both chambers while also moving a 4-year highway reauthorization.

Back to my original question – will the plug-in credit be repealed? Yes. No. Maybe. It really depends on the larger package being passed. As you can see there are many moving parts, not to mention a Congress that will likely go into lame duck campaign mode in the fall.

Another option, and one that I didn’t go into here, is rather than to repeal IRC 30D amend it to something a bit less elitists and maybe even a smaller dollar amount (i.e. $2,500 w/ MRSP cap, etc.)

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47 Comments on “Could tax reform be end to EV incentives...”


  • avatar
    dwford

    Tax reform passing congress in an election year? Let’s be serious. Camp’s proposal has way too many tax deduction eliminations that would make easy campaign commercials for opponents to run on – even though the entire thing is revenue neutral.

    • 0 avatar
      ClutchCarGo

      This. Boehner won’t commit to bringing it up in the House, and I doubt that the Senate will be any more willing to handle this hot potato either. There will be plenty of heat but little light around tax reform. If there’s anything difficult for Congress to do, it must be done in an odd-numbered year.

  • avatar
    carguy67

    re: “Your tax dollars subsidize rich people’s cars”

    Don’t think that’s a fair generalization/simplification. I live in the SF Bay Area and, yes, see lots of Teslas but also lots of Leafs, Volts, etc. driven by middle class-type people (note here ‘middle class’ takes at least $100K/yr).

    • 0 avatar
      Juan Barnett

      I’m sure it isn’t fair, but I’m simply predicting how political forces will spin it to resonate with their voters in places like Kansas and Ohio.

      • 0 avatar
        carguy67

        Ah … missed the subtle nuance. That’s what I get for skimming an article before I’ve had my second cup of coffee.

        Where I work–near the Workday HQ in Pleasanton–there are at least 8 charging stations, and probably more nearby. Having heard they aren’t selling well, I was surprised to see more Volts getting charged than other EVs.

    • 0 avatar
      Vulpine

      While I agree it isn’t fair, carguy67, the hypesters, the spin doctors, anyone who is anti-one-percent-er will make the claim simply to try and drive those supported by the 0.01% who put the most money individually (and corporate) into politics.

      Could this be the end to the incentives? Maybe, but for some reason I doubt it. As others have said, too many will say too much in this election season which means nothing will really get done.

      That said, while removing the incentive will definitely slow down sales across the board, it probably won’t stall them. Some cars like the Leaf and Model S seem to have enough demand that sales will continue, albeit at a slightly reduced rate. Others, like the Volt which only barely sold even WITH the incentive before a price cut, may lose much of the growth it’s seen since that price cut. Also, losing that incentive will mean a significant drop of income to the manufacturers of the lower-priced models while that $15M drop won’t do a whole lot to Tesla, who is currently eating similar losses as they continue to ramp up production capability. Again, they may be slowed, but I don’t believe they’ll be stopped.

      • 0 avatar
        carguy67

        I (originally) missed Juan’s point (see above). I don’t think the ‘hypesters,’ et al will win this one–like I said I see plenty of middle-class types driving EVs, and with the exception of the Model S I don’t think many think of EVs as “rich man’s cars.” And, when people see an ‘S’ they’re probably thinking “Wish to hell I’d bought TSLA when it was $20” (at least I do).

    • 0 avatar
      APaGttH

      The average income for a Volt buyer is over $140K a year. Not ‘rich’ but certainly in the top 10% of wage earners (if not higher). That’s individual income by the way – not household.

      You don’t have middle-class slobs for the most part buying electrics and plug-in series or parallel hybrids. Stats show its the top 20% across the board. There are always outliers.

      • 0 avatar
        colin42

        What is the source of the average volt buyer earning $140k / year. I’m a volt lease owner and wish I earned $140k /year. Every volt owner I’ve met doesn’t earn that much.

    • 0 avatar
      Steve65

      If you make so much money that there’s room in your tax return for a $7500 refund/credit, you’re rich by any meaningful measure. Providing incentives for people who can:

      1) buy a new off the lot car and,

      b) benefit from a $7500 tax reduction.

      is subsidizing the wealthy. Period. Much like Cash for Clunkers, it’s a incentive program for people who can prove that they don’t actually NEED the help.

  • avatar
    Quentin

    West Virginia has an alt fuel (electric, natural gas, methanol, ethanol, etc) tax credit of 35% of the taxable vehicle cost up to $7500. If I were to buy a Volt outright (no trade… WV taxes based on the delta between the new cars and the trade), I would get a $7500 tax credit on my WV state taxes.

    Amusingly, whoever wrote the law really screwed up with the verbiage because they included any vehicle that can operate on E85 or any hybrid that can run exclusively on electric power for some period of time (even if that power was generated by an electric motor like my non-plug-in Prius, C-max, or any other parallel gas electric hybrid). I talked to one of my lawyer friends that was involved in the review of the legislation and he said that the spirit of the law is a plug-in hybrid electric. The way it is written, my Prius with the little EV button technically is applicable. My Prius was leased through my employer, though, so I didn’t get to explore that gray area. I do know several people with new Silverados that got $7500 in tax credits for buying an “alternative fuel” vehicle. Nonsense.

    • 0 avatar
      bball40dtw

      The Arizona program from the early 2000s was worse. At the time, you could put a four gallon propane tank on an Excursion and get the state to pay for the conversion and 30% of the vehicle cost. Owners continued to use the gas engines because there were all of six propane stations in AZ at the time, and all in Phoenix.

  • avatar
    SCE to AUX

    While I’m no fan of incentives/subsidies in principle, the EV subsidies sealed the deal for my Leaf.

    Repeal of the subsidy will hurt lower-priced EVs – like the Leaf – but not cars like the Tesla Model S.

    • 0 avatar
      Juan Barnett

      Exactly. It won’t hurt CURRENT Tesla sales, but if the product planning folks in Palo Alto are banking on their entry-level EV, vehicle III, to include a large tax incentive thus giving them the sub $40K price tag, I hope they have a back up plan.

      • 0 avatar
        Vulpine

        That assumes, Juan, that Tesla is “banking on their entry-level EV, vehicle III, to include a large tax incentive thus giving them the sub $40K price tag.” While I won’t necessarily disagree, I also can’t necessarily agree. And while I may misremember, I think he was aiming for sub-$30K, which would be far more likely with that subsidy than without.

        • 0 avatar
          Dr. Kenneth Noisewater

          I’m thinking a fully-optioned Gen-3 will end up in the $50k range.

          For 200mi+ worth of battery, 0-60 in the 6s or better, 3-series amounts of space, and free Supercharging? That’d work for me.

          I still would like free moneys though. I’m in the zone between being able to get all the $7500 back after mortgage deduction etc. while still not quite at the point where AMT kicks in.

  • avatar
    DeeDub

    Republican politician comes out against environmental tax subsidies. Full story at 11.

  • avatar
    TW5

    The government has been trying to convert complicated EV tax credits into point-of-sale rebates for quite some time. If tax reform is passed in 2015, the EV tax credits might move to a POS system. Since POS rebates are not subject to means testing, legislators might put an MSRP-cap on the regulations. Vehicles like the Tesla Model S or the Cadillac ELR might lose their subsidies, but subsidies will almost certainly continue. We’re talking about DC, right? As a general rule, they don’t stop handing out pork.

  • avatar
    Blackcloud_9

    I think that the EV incentive was a good thing to help jump-start the EV market but it was meant to be a temporary thing. I think the EV marketplace and infrastructure is now established enough to make it on it’s own.
    Just count the number of full EVs or EREVs – GM, Ford, Nissan, FCA (Fiat), Toyota, Honda, Tesla, Mitsubishi (and I probably missed a couple) – all have products available. Production of all of these vehicles now make it viable for future R&D to continue. This will mean increases in efficiency and reduction in costs. There are currently over 7600 public Electric Charging stations across the country.
    If the United States ponderous tax code is truly going to be reformed, many people will feel the initial pinch of losing this or that particular tax credit. But in the long run, it will be to everyone’s benefit.
    Statement of Disclosure: I currently lease a Chevy Volt. And while I’ll probably turn this one in at the end of the lease, I am anxiously awaiting what the next generation of the Volt will like.

    • 0 avatar
      redav

      I think there’s a flaw in your reasoning. Many of those companies making EVs are only doing it for CA compliance. They have to sell them, and it may be that if the govt subsidies go away, customers won’t buy them at the higher price, which means the manufacturers must drop the price, i.e., subsidize them themselves. I don’t see that as a being a sustainable situation that the manufacturers want–they’d rather just kill the car like GM did with the EV1.

      But certainly, there will be a point where there is enough infrastructure, technical knowledge, acceptance, etc., that car makers will keep making/selling them without subsidies. I just doubt we’re at that point yet.

  • avatar
    redav

    If the incentives do go away, then I’ll probably buy one before the change goes into effect.

    Regardless of my philosophical feelings about whether tax dollars ought to subsidize rich people’s cars, I must remember the three most important words in the English language: “I got mine.”

    And it’s possible ending the subsidy will increase resale value, too.

  • avatar
    Pch101

    The pundits would suggest that nobody want this plan.

    http://www.pbs.org/newshour/updates/house-gop-tax-plan-faces-long-odds-election-year/

  • avatar
    carguy67

    In the Bay Area, anecdotal evidence–newspaper readers’ comments, etc.–suggest more people buy EVs and hybrids for access to the HOV lanes than for the subsidies or environmental issues (although driving an EV lets you advertise your ‘greenness’). I’d guess many buyers, maybe most, would pay a surcharge to save a few minutes a day stuck in traffic jams (it’s often more than a few minutes).

    In the San Jose Mercury News, Gary Richards writes a column called ‘Mr. Roadshow,’ and he gets many inquiries like “I’m about to buy a Tesla/Prius/Volt/Leaf … how many carpool lane stickers are left?”

    • 0 avatar
      slance66

      As someone who decided that just paying the ticket was worth the time savings, I can agree with this in the Bay Area (a friend bought a Tesla last year). I got two during the year I commuted from Almaden Valley to Palo Alto. But that situation doesn’t exist very widely across the country.

      The subsidy needs to end. The early hybrids were subsidized too. This one is worse, as not only are these cars expensive, but their utility is limited to those in urban centers.

  • avatar
    Uncle Wainey

    The federal mortgage interest deduction costs nearly $70 billion per year. You would think we would hear more about ending that subsidy vs. ending a much smaller program that’s designed to phase itself out anyway.

    • 0 avatar
      Kinosh

      Yup, I rent. Where’s my deduction?

      • 0 avatar
        KixStart

        Your landlord has it, except for him it’s a business expense.

      • 0 avatar
        Dr. Kenneth Noisewater

        Rolled into your rent.

        In theory.

        Incidentally, renting should _always_ cost more than owning, like for like. This is because a landlord expects a profit. When owning costs more, that’s a red flag for overpriced real estate.

        (the house I bought has a PITI that’s lower than comparable rents, and about 18% of my take-home, thanks to FREE BERNANKEBUXX. Comparable rents are about 25-30% higher.)

  • avatar
    Xeranar

    I had to click the link like a fooooooool! I did, I read down to the first ‘highlight’ and my mind simply fell apart. There is no way this is a real tax reform plan. Regardless of your basic ideological view this is a classic giveaway to corporations and wealthy that pretends to be reforming the tax code to be simpler. Good lord, our corporate tax (effective rate) is some of the lowest in the world. The biggest actually get money from the government to operate. So….This tax plan has zero chance of passing under any form.

    As for EV incentives, I believe its time to phase out the top-end of them. Basically it should come down to income level, if you make over X you simply cannot take it. I would place it somewhere in the 100K individual range, so most could still take it but atleast not reward the wealthy-range for buying a Tesla when there is no real incentive besides a small percentage reward over a Mercedes Benz. There is a complicated formula for return on these incentives but simply put the closer to median income the more valuable they become and the Leaf and friends are more likely recipients.

  • avatar
    APaGttH

    And of course, the picture of a Volt is used in this story.

    $70K plus Teslas’s with $7500 ‘guberment rebates to the six-digit income buyers good. Leaf – good. Kia Soul electric good.

    Volt – bad.

    • 0 avatar
      KixStart

      The Volt is bad. Mostly because GM is selling it at a loss. The idea was to jumpstart EVs that would sell, not encourage the development of dead-ends.

      The Volt has crummy CS mode fuel economy and limited utility. If you’re going to reduce gas use, go the whole distance and make this thing competitive with the Prius once you’ve exhausted the battery. If lacks a fourth seat; the history of two-seat commuter cars tells us that utility is important. The success of the Prius G2 tells us that utility is important. These are factors that are holding it back. I view the way the car spec’ed out as a variation on the much derided “compliance car” in the CA market. GM maximized the tax harvest and didn’t give enough thought to how they would actually sell against other options.

      As a bonus, GM didn’t meet its own brag. Didn’t even come close.

      It’s under-engineered. The crummy CS mode fuel economy that it does manage is done using higher compression and premium fuel! Switch to regular and you’ll lose some mpgs. The completely unsophisticated engine was a fine example of GM cheaping out. Where’s the Atkinson tricks that Toyota and Ford employ? Or DI? If this is an “electric” car, why is the ICE so big? Why is it so much heavier than a Prius (the difference is much greater than the difference in battery weights)? Why didn’t they meet the Prius CD?

      The reason this car exists is because El Lutzbo got a hair across his ass on account of the Tesla. Never mind that the real competition, Toyota, was (and is) holding GM by the nose while kicking it in the nuts in hybrids, GM was focussed on a start-up with no track record, a ridiculously expensive two-seater and big dreams.

      • 0 avatar
        css28

        Nonsense.

        A legitimate four seater hatchback with performance, handling and the ability to save me $200/year in my daily 38 mile commute compared to my 2011 Prius. That’s including the costs of all of the electricity and any supplemental gasoline I’ve used to keep the car warm this time of year.

        The “crummy CS mode fuel economy” you refer to is on the order of 40 mpg in my experience. In terms of fuel cost, it still betters a common rail TDI Jetta or Passat. On the highway.

        Why is the engine big? So that it can be driven all day with undiminished throttle response and comfort. It’s a smaller engine than in my Prius but the driving experience is head and shoulders above it, even in CS mode.
        Unlike any of the other electric cars this can be one’s only car for both local and long distance use.

        With the extra weight comes a car that is solid and quiet and comfortable in any environment.

        Can it be better? Sure. Assuming GM sticks with it it’s an excellent first step.

        • 0 avatar
          KixStart

          I’ll stand by what I wrote. Except for the size of the battery (adding a couple hundred pounds of cells is hardly a technological achievement), the Volt is not class-leading in any way.

          GM likes to talk up the Volt tech but if you look under the covers, the car is not remarkable at all and parts are certainly subpar.

          Worse, GM is losing money on it and gaining no strategic advantage. The enabling tech is the cell. When better cells are available, Toyota and Ford can add them to their existing offerings and move further into PHEV space or develop basic EVs.

          I’m pleased you were able to save $200/year. That certainly makes a $40K car seem so economical.

          • 0 avatar
            Carlson Fan

            His point is the Volt is cheaper to run than the Prius and offers a premium driving experience versus the chitty chitty bang bang drive of a Prius. Get a clue, Volts don’t cost 40K.

          • 0 avatar
            KixStart

            Initially, they were $40K. It’s courtesy of the taxpayer that they netted out for less, not due to GM figuring out how to build anything close to an affordable car.

            And savings of $200/year? That’s it? Why bother? Almost any sub $20K car would have more room and be a better economic proposition.

          • 0 avatar
            Dr. Kenneth Noisewater

            The engine is an off-the-shelf kludge, and having to share a suboptimal platform so that the battery impinges on interior space is a flaw.

            However, the Volt’s driving dynamics are far superior to those of the Prius, and better than Leaf’s.

            And, for the right use case, Volt is FAR more energy efficient than a Prius. My use case happens to align very closely with the Volt’s ideal use case: only 1 car, fully electric commute with occasional long-distance trips. My gas mile percentage to date in my 2013 is around 8%, and on electric it costs a blended 2.5 cents per mile.

            If Honda improved its pricing on the Accord PHEV and added 10kWh usable power, while having adequate trunk space and 5 seats, I’d consider it. And, given Supercharging so far in Texas, I could go with a duly-equipped Tesla as my only vehicle here.

            ps: how much of GM’s “Volts sold at a loss” is actually attributable to debts/expenses held by New GM vs GM Liquidation? Cuz AFAIK the marginal cost of production of a Volt is in the $25k range.

          • 0 avatar
            KixStart

            “The engine is an off-the-shelf kludge, and having to share a suboptimal platform so that the battery impinges on interior space is a flaw.”

            True. Yet, we hear GM talk about how this tech is beyond anything we’ve encountered before. Seriously? They bet $1.2 billion on development (Reuters article) and didn’t put a decent engine in it? Dropped it on a suboptimal platform? For a vehicle that would *necessarily* be shockingly expensive? In some respects, this isn’t much more advanced than those early ’80’s Le Cars with a ton of lead acid batteries dropped into them.

            “ps: how much of GM’s “Volts sold at a loss” is actually attributable to debts/expenses held by New GM vs GM Liquidation? Cuz AFAIK the marginal cost of production of a Volt is in the $25k range.”

            Before the price decrease, Akerson assured us they were losing money on every one. I take that as an indication they weren’t getting revenue to cover marginal build cost. Even if it’s just $25K to build, they were incenting these fairly heavily and costs could come due later from subvented leases. If they’re not accounting for that now, it could look even worse later.

            The recent slowdown in production and incentives suggests to me that each vehicle was a cash loss right off the top and they’ve decided to stem the bleeding to some extent.

          • 0 avatar
            css28

            Why would I want more development invested in the engine? Its function is secondary to my use of the car. It doesn’t affect the throttle response and returns better highway mileage than many hybrids.
            93% of my miles have been electric and those miles cost me 1/3 of what they would for the gasoline in the most efficient hybrid you can buy.
            At my current rate of use the car’s engine will have 4,000 mies on it by the time it’s 10 years old
            You keep ragging on Voltec then citing the engine. What’s up with that?

            Haters gonna hate I guess…

      • 0 avatar
        Lorenzo

        You forget that the wave-of-the-future Volt was part of the justification for the bailout. “The credit markets are frozen, just as we’re about to build cutting-edge cars – like the Volt! Give us a bailout so we can compete!” If you look at it that way, the Volt has paid for itself many times over – thanks to the pre-planned bailout.

  • avatar
    KixStart

    While this tax credit was not a particularly good idea (far too large per KWH, capped at 16KWH and too open-ended), various auto manufacturers have made plans based on its availability.

    Changing the rules with little warning would undermine faith in future tax incentives. Congress could change the rule to “200K units or 2018/19, whichever comes first) and give automakers adequate time to prepare or change course.

    The GOP often carries on about “uncertain regulatory environment” and this would be a bad example of making tax law uncertain as well.


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