Washington state

Thousands of Washingtonians drive cars that get this tax break. It’s under siege in D.C.

Washington has the second-highest number of registered electric vehicles in the country, behind only California.

But federal tax breaks for owners have largely gone to people with six-figure incomes.

With a dossier full of that kind of information as ammunition, powerful opponents of expanding the credit are mobilizing to kill it.

“The EV tax credit is no longer necessary,” Sen. John Barrasso, chairman of the Senate Environment and Public Works Committee, wrote earlier this month in a letter to Senate Majority Leader Mitch McConnell.

Auto industry interests and clean energy advocates have been pressing to expand the credit that currently gives electric vehicle owners up to $7,500 per qualified vehicle, which is beginning to phase out under current law. But the mood in the U.S. Senate appears to be shifting in the opposite direction.

Sen. Chuck Grassley, the powerful chairman of the tax-writing Senate Finance Committee, “has serious concerns about expanding this existing tax credit, which primarily benefits upper-income individuals who likely can already afford electric vehicles,” spokesman Michael Zona said.

In 2019, there were 179,600 registered electric vehicles in California, an amount that dwarfed all other states, according to the market research firm IHS Markit. States with the second- and third-most registrations were Washington, which has 19,900, and Florida, which has 16,600.

In Washington, those who purchase new or used clean alternative fuel or plug-in hybrid vehicles are eligible for state sales and use tax exemptions under a law passed last legislative session.

From Aug. 1, 2019 to July 31, 2020, buyers can get sales tax exemptions on up to $25,000 on the purchase of a new car — saving as much as $2,325 at Olympia’s 9.3 percent sales tax rate. That number decreases to $20,000 in 2021, and $15,000 in 2023. For used cars, the sales tax is exempt up to $16,000 in value.

The Trump administration, however, proposed ending the federal credit this year, part of its effort to end subsidies for similar items, notably renewable energy sources.

An effort to expand it is being pushed by a group of House and Senate lawmakers, including some Republicans, who have long promoted clean energy, backed by environmental groups, auto industry interests and others.

A key goal is to spur production so it reaches a level where it’s more efficient and less costly to produce the vehicles.

With the credit, “we’re kind of getting to where we need to be,” Rep. Dan Kildee, a Michigan Democrat who’s helping to lead the expansion effort, told McClatchy.

He has the support of some powerful Democrats who run the House, and one of their hopes is that the credit winds up in a catch-all tax cut bill later this year.

The major federal tax break for qualified plug-in electric vehicles was first enacted in 2008. It ranges from $2,500 to $7,500 per vehicle bought after December 31, 2009. It begins to phase out when at least 200,000 qualifying vehicles per manufacturer have been sold for use in this country.

Tesla passed the threshold last year, and since July 1, the credit on its eligible vehicles has been reduced to $1,875. Next year, no credit will be available on eligible Teslas.

Credit for buying eligible General Motors vehicles is also being phased out. In April, the Internal Revenue Service reported that GM had sold more than 200,000 eligible vehicles during the last quarter of last year, triggering the phaseout. Since October 1, the credit has been reduced to $1,875 per GM vehicle, and after March 31, 2020, no credit will be available.

Critics of the credit also note a September Treasury Department report. that found taxpayers also could be getting millions of dollars worth of the breaks by mistake.

The Treasury inspector general analyzed 239,422 plug-in credits claimed between fiscal years 2014 through 2018 — years that electric vehicle sales began to climb — and found 16,510 taxpayers who received $73.8 million in “potentially erroneous credits.”

The IRS responded that it will begin a “recovery program for potentially erroneous credits identified in your report,” as well as initiate different auditing methods, wrote Eric Hylton, IRS commissioner of the IRS small business/self employed division, in a memo responding to the report.

Supporters of the electric vehicle credit countered that such reports can be misleading.

“The IG report addresses only the IRS’ systems and what should be on its forms,” said Genevieve Cullen, president of the Electric Drive Transportation Association. “The merits of the credit itself, which have been widely documented in economic and environmental benefits, are simply outside the scope of this report.”

Who gets EV tax credit

Also cited by credit skeptics is a 2016 report from the nonpartisan Congressional Research Service that studied individual taxpayers and found 78 percent of the tax credits were “disproportionately claimed by higher-income taxpayers” with adjusted gross incomes of $100,000 or more. Seven percent had incomes of more than $1 million.

Credit backers see such numbers as outdated and misleading.

“Outdated market snapshots fail to capture the dynamics of this rapidly emerging market and how the tax credit is accelerating model and price diversity and expanding the consumer base,” Cullen said.

Congressional Research Service officials would not comment on the report, which was updated in May.

Ben Jervey, research lead at Koch vs. Clean, which promotes clean energy, maintained that the data showing the credit going largely to wealthy taxpayers is misleading.

It fails to take into account leased vehicles, Jervey said, where the credit is often used to reduce the price. More than half of electric vehicles are estimated to be leased.

“The lending company is passing the tax credit on to the lessee,” he said. “It’s part of the marketing.”

Electric vehicle markets are growing, expansion supporters say, but still need help. New registrations hit 208,000 fully electric vehicles last year, according to an analysis by business intelligence firm IHS Markit.

The company expects 350,000 new EVs to be sold in this country next year.

That means there’s still plenty of room and need to grow, say senators and congressmen, both Democrat and Republican, who maintain that the credit needs to be expanded.

They’re pushing the “Driving America Forward Act,” which would allow buyers of an additional 400,000 vehicles per manufacturer to be eligible for a $7,000 tax credit.

Not only will the expanded credit help make production more efficient and vehicles less costly, said Kildee, but it would help “position the domestic market and our domestic producers as well to get into this game and not cede the development of EVs to our global competition.”

He sees legislative progress ahead, noting, “There’s always going to be opposition to any idea that’s a big idea.”

Darn right, countered Barrasso, telling McClatchy: “I don’t think we ought to be giving these tax credits.”

David Lightman is McClatchy’s chief congressional correspondent. He’s been writing, editing and teaching for 47 years, with stops in Hagerstown, Riverside, Calif., Annapolis, Baltimore and since 1981, Washington.
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