A new bill to reform the federal electric car tax credit reform has been proposed in US Congress.

It’s the second one since the Democrats took over the federal government and an even more generous reform.

EV federal tax credit

The federal government in the US has a tax program that provides incentive for buyers of electric vehicles that dates back from the Bush era, and it was expanded during the Obama administration.

It would give $7,500 in tax credits to every buyer of new electric vehicles.

However, the government put a cap of 200,000 deliveries of electric vehicles in the US for each automaker.

After they reach that threshold, it would trigger a phaseout period that would remove access to any federal tax credit for buyers of electric vehicles from those manufacturers in the US.

Tesla was the first manufacturer to hit the threshold back in 2018.

The program was successful in helping accelerate EV sales early on, but it was seen as flawed since both Tesla and GM have hit the threshold – and now they find their EVs less competitive in the US against foreign automakers that haven’t hit their threshold and buyers still have access to the tax credit for their electric vehicles.

Therefore, the program punishes automakers that were early in the transition to electric vehicles.

EV tax credit reforms

With the Democrats taking the White House and the Senate in the latest election in the US, we have been expecting that they would bring back reforms to the EV incentives in order to fix the situation.

Earlier this month, several Democrats introduced the Growing Renewable Energy and Efficiency Now (GREEN) Act to reform the program.

In short, automakers that have met the threshold already would have access to a new $7,000 tax credit for 400,000 additional electric vehicles until a new phaseout period starts again.

Now a second bill, called the Electric Cars Act, has been introduced by Senator Jeff Merkley (D-OR) and Congressman Peter Welch (D-VT) to offer an alternative reform to the program.

It was originally introduced during the Trump administration, but it failed and it is now being reintroduced this week.

The Electric Cars Act changes three important things in the federal tax credit program:

  • Eliminating the per manufacturer cap, allowing consumers access to the tax credit for the next 10 years, regardless of the manufacturer from which they purchase their car;
  • Allowing buyers to use the tax credit over a five-year period, or apply the credit on the spot at the dealership to reduce the price of the vehicle, making the credit more applicable to those without large tax liability; and
  • Providing a 10-year extension of tax credits for alternative fuel vehicles and charging infrastructure to incentivize the buildout of this important infrastructure around the country.

The tax credit would undoubtedly be applied on more than the extra 400,000 vehicles per manufacturer of the GREEN Act and facilitate the entire process since it can be applied on the sticker price instead of as a tax credit.

We will keep an eye on both legislative efforts to see what is going to happen to the tax credit program in the coming months.

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