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A notable part of the Biden administration’s efforts to combat climate change is its goal to have electric vehicles make up half of all new car sales by the year 2030. To that end, it’s offering a tax credit to buyers of electric vehicles (EVs), but not without controversy. By increasing incentives, demand is stronger, allowing EV manufacturers to hike prices. California has an even more ambitious plan. It recently banned the sale of all new gas-powered cars, which is causing drastic problems with its electric grid. Straight Arrow News contributor Tim Carney takes a look at the unintended consequences of offering tax credits for EVs.
Taxes. You may see them as the way government generates revenue. But politicians have a grander vision of taxes. They see the tax code as a way to change how you and I behave. They create alcohol taxes to discourage drinking. Tariffs to push us towards more American made goods and green tax credits to get us to buy the stuff they think will help the environment.
But human behavior and capitalism are complicated. They are beyond the understanding of our tax writers. And so the best laid plans often go awry. The result? Unintended consequences and ever increasing complexity.
One recent example is the electric vehicle tax credit. In an effort to decrease gasoline usage, Congress in 2008 created a $7,500 tax credit for anyone who buys a plug-in electric vehicle.
The unintended consequences were plenty. For starters, the average Tesla buyer is not exactly middle class, which meant this was mostly a subsidy for the very wealthy.
Also, driving up demand for electric vehicles creates all sorts of environmental consequences. Deep sea mining is the most efficient way to find the materials needed for electric vehicles batteries. It also threatens to have massive costs on the ecosystems way down there.
What’s more, key parts of the electric vehicle supply chain were based overseas, including in China, meaning these tax credits were subsidizing Chinese companies.
Finally, subsidizing the purchase of a Tesla allows Tesla to charge more. So some of the tax credit was passed through to profit a company owned by the world’s richest man.
