Progressives Push American-Made Mandate Amid Electric Vehicle Credit Fight

Some Dems are looking to attach a domestic-production requirement to an overhaul of a tax break for plug-in electric vehicles. The tax break already has its critics, but the new proposal could add more.

AP Photo/David Zalubowski
April 15, 2019, 8 p.m.

Democrats drew fierce condemnation after floating job guarantees and universal healthcare in the Green New Deal, the controversial yet nonbinding proposal to eliminate power sector emissions over the next decade.

But now the progressive wing of the party is looking to fuse environmental and social policy into legislation that could directly impact billions of dollars in investment and thousands of jobs.

Rep. Ro Khanna and Sen. Ed Markey, the lead sponsor on the Green New Deal, are putting the finishing touches on a bill to remove the cap for an electric-vehicle tax credit but restrict the credit to domestically produced vehicles.

“You get it if you’re making the Teslas in America or GM electric vehicles in America,” Khanna, a senior member of the House Progressive Caucus whose district includes the Fremont, California Tesla factory and other facilities, told National Journal. “We’ve talked to a lot of industry, and industry is behind it.”

That domestic-manufacturing priority, however, is driving up concern among the staunchest electric-vehicle supporters, who say the legislation could stymie global industry growth and complicate a bipartisan effort to raise the current cap.

“I think it’s problematic. Essentially, it’s like a tariff on imported cars,” said Joel Levin, executive director of Plug In America, a consumer-based electric-vehicle organization. “We want to see a wide range of EVs on the market. We want to see the broadest possible selection of EVs … and I think encouraging the credit for everybody is the best way to do that.”

Enacted in 2008, the tax break for plug-in electric-vehicle purchases can be as high as $7,500 for the customer. After a company sells 200,000 units, though, buyers can no longer take advantage of the full credit. So far, EV carmakers Tesla and General Motors have hit the cap, and credits for purchases of those vehicles are now $3,750.

Manufacturing incentives are also in place to compliment the consumer credit. A sweeping 2007 energy law enacted the Advanced Technology Vehicles Manufacturing loan program, which has provided assistance to Tesla, Nissan, Ford, and other companies.

Khanna said he’s still working with counsel to finalize the bill and hasn’t yet spoken to Ways and Means leadership about advancing it. A spokesperson for Markey didn’t respond to a request for comment, and spokespeople for Khanna declined to comment further.

By a large margin, most EVs sold in the U.S. are made domestically, according to a 2018 Energy Department study. In 2017, about 75 percent of plug-in electric vehicles were produced in the United States, with Germany and Japan making up the bulk of the remaining 25 percent.

But some EV advocates are concerned that a domestic manufacturing provision could impact American producers outside U.S. borders.

“What if we do that, and then Germany announces that their credits are going to be available for German cars and Tesla, who sells a lot of cars in Germany now, is not eligible for them,” Levin said. “So I could see, just like with tariffs, it causes a kind of tit-for-tat with other countries.”

There are other proposals to extend the EV tax credit that don’t have the domestic manufacturing provision. Sens. Debbie Stabenow, Lamar Alexander, Gary Peters, and Susan Collins, and Rep. Dan Kildee introduced a bill last week that would keep the $7,500 credit and expand the production cap to 600,000 vehicles.

A November report by the Congressional Research Service found that in 2016, about 57,000 taxpayers claimed $375 million in plug-in electric-vehicle tax credits. Among those, about 78 percent of filers had an adjusted gross income of $100,000 or more, CRS said.

EV opponents in industry and on Capitol Hill seize on the CRS claim and income data to characterize the tax credit as regressive.

“I’m going to oppose that, and I’m trying to eliminate the tax credit for electric vehicles completely,” said Sen. John Barrasso, chairman of the Environment and Public Works Committee. “These are luxury cars. If you’re able to pay over $100,000 for a vehicle, you shouldn’t get a tax credit to do it.”

Barrasso reintroduced a repeal of the credit earlier this year, alongside a handful of Senate and House Republicans. That legislation would also saddle EV consumers with an annual user fee, which would be paid to the crisis-prone Highway Trust Fund. The fund is traditionally financed through federal gas and diesel taxes, and the growing prevalence of EVs means even less money is hitting its coffers.

The Trump administration proposed eliminating the $7,500 tax credit in its mid-March budget proposal for fiscal 2020, a move it said would save the federal government $2.5 billion. The CRS report stated that the current tax break will cost the federal government $7.5 billion through 2022. Raising the production cap would increase the cost further.

Barrasso failed to move his legislation last year, and EV supporters on Capitol Hill also fell short. Last year, a group of House members proposed legislation to eliminate the production cap, but phase out the credit by 2022. But many of the members who supported that legislation, such as Rep. Diane Black and Sen. Dean Heller, are no longer in Congress.

Other lawmakers have picked up the baton, and last week’s legislation is more generous than what members proposed in 2018. Stabenow and Peters’s home state of Michigan houses the headquarters of General Motors, maker of the plug-in Chevy Volt. Nissan produces the all-electric Leaf at a major factory in Alexander’s home state of Tennessee.

Khanna has already signed on to an electric-vehicle bill this year. Sen. Jeff Merkley and Rep. Peter Welch introduced legislation this month that would eliminate the cap and apply the credit at the point of sale, rather than on their tax returns. That version, however, doesn’t have Khanna’s domestic-production provision.

Alone, an EV tax-credit measure has little chance in the Senate, said Finance Committee Chairman Chuck Grassley. But the measure could have a chance if it’s attached to a package renewing some three-dozen expired tax breaks known as extenders, he said. Grassley has been pushing for a tax-extenders bill in part because they contain major breaks for biofuels that are important to his home state of Iowa.

“But wanting extenders like I want extenders, if the House sent [an extenders bill] over with that in it, other people might fight it, but I wouldn’t fight it because we’ve got to get extenders passed, and it picks us up some votes in the United States Senate by doing that,” Grassley said during a pen-and-pad session with reporters last week.

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