Buying a car is already complicated and stressful enough. Now, in 2024, tax rules are changing once again regarding electric vehicles, and new tailpipe emission regulations may make it even more difficult to purchase a gas-powered car. [emphasis, links added]
The new changes, implemented through the dubiously named Inflation Reduction Act, will not make life easier for businesses and families, though many of the regulations have the stated goal of making EVs more affordable and accessible.
In reality, the changes complicate the field, make fewer EVs eligible for the credit, and have restrictions that incentivize price increases and fees.
Starting this year, prospective EV buyers can use a $7,500 tax credit as a point-of-sale rebate. This means they can ask the dealership to deduct $7,500 from the price of the car immediately and the dealer takes the tax credit.
At first glance, this sounds like a boon for everyone involved. Consumers get their deductions right away and dealers get made whole by the government. However, the administration is playing with the fire that is supply and demand.
One need look no further than higher education to see the pitfalls of this approach. Colleges and universities set prices they thought people could afford.
To incentivize people to get college degrees, the government subsidized student loans on a massive scale. This drove up demand.
To meet it, colleges raised prices, knowing the government would continue to subsidize these prices with its seemingly bottomless cache of student loans.
This resulted in exorbitantly high tuition costs nationwide. It has also resulted in tens of millions of dollars in unpaid student loan debt. This problem has become so pressing that the Biden administration continues to try to forgive outstanding debt unconstitutionally.
Turning the EV tax credit into a one-time point-of-sale rebate threatens to recreate the untenable student loan system where all taxpayers are expected to subsidize the relatively affluent population who partakes in said system.
However, it seems the administration (and the authors of the Inflation Reduction Act) anticipated this and implemented further changes to avoid the issue.
Dealers cannot apply the credit if the manufacturer’s suggested retail price of the car in question is above $55,000 or $80,000 for electric SUVs.
It also adds sourcing requirements, ensuring that an increasing percentage of parts and materials come from the United States, where production is notoriously more expensive.
In other words, the government is implementing policies that drive up demand, placing upward pressure on prices while at the same time artificially trying to keep down those prices with a price cap for this credit.
However, price caps disincentivize production. This is not a truth that is limited to EVs. It is a universal economic reality.
Because the price cap applies only to MSRP, manufacturers may be forced into implementing several hidden fees.
If the sticker price must be below a certain number but the cost of doing business is too high, hidden fees will be the only way many manufacturers can stay solvent amidst the Biden administration’s assault on this market.
More likely, manufacturers may pivot back to gas-powered vehicles. Even Hertz has decided that having EVs on their lots is too expensive and has sold off tens of thousands of EVs in their inventory in recent months.
Perhaps anticipating this, the Biden administration’s Environmental Protection Agency is in the process of promulgating tailpipe emission regulations that are poised to make many traditional gas-powered cars illegal in the coming years.
Studies have shown that it is nearly impossible for car companies to meet these lofty emissions requirements while still selling gas-powered vehicles.
Even selling hybrids exclusively wouldn’t cut it, according to Marlo Lewis, a senior research fellow at the Competitive Enterprise Institute.
According to Lewis, “Even if Toyota sold only its greenest plug-in Prius, it still couldn’t get halfway to these unreasonably stringent standards.”
This is the situation the Biden administration has created for the country and consumers/taxpayers.
The federal government will have to continuously issue new regulations to patch the gaping policy holes created by their previous ones.
This has already been done with the decadeslong push for wind and solar tax credits. These credits have been unable to make these renewable technologies self-sufficient and have left taxpayers on the hook for years.
The federal government has made several public policy mistakes in its efforts to tamper with the free market. It is prepared to do the same with electric vehicles.
These policies will create a complicated mess of tax laws while costing taxpayers billions and will likely fail at their end goal.
Top photo by Robbie on Unsplash
Read rest at Washington Examiner
