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Electric Vehicle Tax Credits in Democratic Plan

The House’s current Build Back Better plan calls for extending a $7,500 tax credit for the purchase of electric vehicles, and it includes an additional $4,500 credit for electric vehicles built in the U.S. by union labor.

In a press conference blasting the House Democrats’ bill, Sen. Lindsey Graham may have left a misleading impression when he said that under the plan, “we go from 50 vehicles eligible for the $7,500 to two, two Chevy cars.”

Graham then went on to correctly refer to the $4,500 credit, saying that “under their construct, the $4,500, the big part of it, will only be eligible for companies that hire union workers.” Graham also explained it more precisely in a press release a day earlier. But his comments at the press conference may have confused viewers, and so here, for clarity, we provide an explainer of what is being proposed. 

Graham, Nov. 4: The $7,500 tax credit is now available under current law to all these people who make cars, like 50 different types of cars made by company all over the world. BMW makes cars in South Carolina, so does Volkswagen, they have plans to electrify their fleet, the tax credit is an incentive to do that. Well, what have they done in the House? They’ve changed the electric vehicle tax credit so that if you’re not a union company, if you don’t have a union workforce, you lose the bulk of the tax credit. So we go from 50 vehicles eligible for the $7,500 to two, two Chevy cars. And why do they get the tax credit? Because the plants that make these cars are unionized. If you truly cared about the environment, why would you take all these companies out of the game and reduce the amount of electric vehicles that could come from a variety of sources down to two? …

Unions have the right to organize and that’s part of America. But the House Democrats are saying openly that the tax credit for electric vehicles under their construct, the $4,500, the big part of it, will only be eligible for companies that hire union workers. That is bad for the environment and is bad for business and I don’t think it’s legal.

The first EV tax credits were introduced in 2008 under President George W. Bush and were expanded in 2009 under President Barack Obama. The policy allows taxpayers to get credits of up to $7,500 for the purchase of electric-powered vehicles, provided individuals owed at least that much in taxes that year.

The policy also set a cap, so that each manufacturer could deliver up to 200,000 vehicles with that full tax rebate. GM, mainly with the Chevy Bolt, and Tesla were the first to reach that 200,000 threshold, and the tax credits were reduced in 2019 and ultimately cut off in 2020 for those vehicles.

Although there was some congressional support to extend the tax credits in 2019, then-President Donald Trump squashed that plan.

“As a matter of our policy, we want to end all of those subsidies,” then-White House economic adviser Larry Kudlow said.

Contrary to the impression left by Graham, the House bill now under consideration would actually extend tax credits of $7,500 for the purchases of electric cars made anywhere, with or without union labor, for five years (See Section 136401). And they would be refundable tax credits, meaning that purchasers of electric vehicles would get the tax credit even if they paid less than the credit amount in taxes that year.

That means vehicles produced by the U.S.’s largest electric vehicle manufacturer, Tesla, which uses nonunion labor and whose cars are no longer eligible for the tax credit, would again qualify for the $7,500 credit. In fact, Tesla “appears to have been preemptively hiking the price of their vehicles in anticipation of this passing,” Bengt Halvorson, senior editor of Green Car Reports, told us in a phone interview.

A Senate version of the EV plan had initially proposed to offer an additional tax credit — beyond the base $7,500 — of $2,500 for the buyers of electric vehicles manufactured in the U.S., plus another $2,500 for vehicles made by union workers in the U.S. That would bring the total to a maximum of $12,500 for electric vehicles made in the U.S. by union workers. The version now being considered in the House, however, would make an additional $4,500 available only for vehicles made in the U.S. by union workers, plus another $500 for certain domestically sourced content (whether made by union workers or not).

In a state like Graham’s South Carolina, where there are several nonunion auto manufacturing facilities, that would make the electric vehicles produced there ineligible for the extra $4,500 tax credit.

“So BMW and Volkswagen came to South Carolina to assemble and make cars and they will be denied this tax credit if they produce an electric vehicle because of the nature of their workforce,” Graham said. “This is offensive politics, it’s bad economics, and it’s bad for the environment. And if this bill ever gets over here [to the Senate], we’re going to address this.”

Kevin Bishop, a spokesman for Graham, said the senator simply “didn’t complete his statement” when he said that under the House bill “we go from 50 vehicles eligible for the $7,500 to two, two Chevy cars.”

Bishop noted that a press release Graham issued the day before the press conference was clearer that Graham opposed the “additional $4,500 tax credit for people who buy electric vehicles made by unions” (emphasis ours).

Graham is correct that currently, only two Chevy cars would be eligible for the $4,500 in additional tax credit the House proposes to offer for vehicles manufactured in the U.S. by union workers.

“If a bill did pass stating that union-only produced EVs would receive the full credit, he would be correct in that only the Bolt EV and EUV would be eligible at this point in time,” Jessica Caldwell, Edmunds’ executive director of insights, told us.

Those two cars, the Chevy Bolt EV and EUV, are made by union workers in Orion, Michigan.

But several more vehicles will be coming soon that would be eligible.

“Among them, the Ford F-150 Lightning, GMC Hummer EV, and Chevrolet Silverado are all slated to be Michigan-built by UAW workers, while the Cadillac Lyriq (and, likely, an upcoming Acura model) are to be UAW-built in Tennessee,” Halvorson wrote in August. “Jeep doesn’t have a fully electric model yet, but it builds the Wrangler 4xe plug-in hybrid in Ohio.”

And the idea is to encourage vehicle manufacturers to build more electric vehicles in the U.S. using union labor.

“Automaker decisions will rely on this incentive, so it’s very likely that Ford and others would onshore EV assembly to qualify for the credit should it pass,” Shannon Baker-Branstetter, director of domestic climate policy at the left-leaning Center for American Progress, said in an email to FactCheck.org.

“The offerings are really slim at present,” Halvorson told us. “It seems to be a little bit of a chicken and egg thing. Once they have bonuses, you will suddenly see manufacturers deciding to assemble more electric vehicles at the U.S. factories.”

Still, the House plan would leave some electric car brands ineligible for the additional $4,500 tax credit, including those made in the U.S. with nonunion labor.

That would, for now, exclude vehicles like the Mustang Mach-E, which is union-made in Mexico, and the Nissan Leaf, which is made in Tennessee by nonunion workers. Volkswagen, Hyundai, Kia and Volvo all plan to make electric vehicles in the U.S., but not likely with union workers, Halvorson said.

In a letter sent on Sept. 30 to House Speaker Nancy Pelosi, representatives from a dozen international auto manufacturers in the United States said that while they appreciate the extension of the $7,500 tax credit for electric vehicles, they denounced the “discriminatory $4,500 supplemental tax credit given only to buyers of EVs assembled by organized labor.”

“This would unfairly disadvantage American workers who have chosen not to join a union and produce more than half of all vehicles in the United States and the vast majority of American-made EVs,” the letter states. The proposal would also “severely limit consumer choice” when it comes to cars eligible for the full tax incentive, “forcing many to reconsider and purchase traditional gas-powered vehicles.”

Similarly, an Oct. 29 letter from ambassadors of more than two dozen automotive-producing countries to congressional leaders from both parties warned: “This legislation, if implemented, would violate international trade rules, disadvantage hard-working Americans employed by these automakers, and undermine the efforts of these automakers to expand the U.S. EV consumer market to achieve the Administration’s climate goals.”

House Democrats hope to pass the Build Back Better plan the week of Nov. 15, and the EV tax credit plan could be amended before then. If it passes, it would then go to the Senate, where Graham and others could seek to change the EV credit plan. We take no position on the proposed $4,500 additional tax credit for electric cars made in the U.S. by union workers, but Graham left the misleading impression that the entire tax credit would only be available to such vehicles.

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