Democrats in the House of Representatives have reintroduced the GREEN Act (Growing Renewable Energy and Efficiency Now), which among many other tax code revisions would once again allow Tesla and GM customers to claim federal EV tax credits. A similar bill failed to pass in 2020, but the prospects for passage seem bright under the Democrat-controlled Senate and the Biden administration.
The current EV tax credit system was signed into law by George W Bush, and was expanded during the Obama administration. It provides a $7,500 tax credit for the purchase of a new EV. The rule includes a cap of 200,000 vehicles for each automaker. Tesla and GM passed that threshold in 2018—they are the only automakers to do so.
Because of this, Tesla and GM now have a competitive disadvantage in the US against other automakers, including foreign brands, whose customers still have access to the tax credit. In a sense, the way the program is structured, it punishes the companies that took risks by beginning the transition to EVs earlier, and rewards automakers that dithered and hedged their bets.
The 2021 GREEN Act would reduce the credit to $7,000, but would raise the ceiling for the credits to 600,000 qualifying vehicles sold. Any cars sold between the expiration of the old credit and the implementation of the new law would not count toward the cap—as soon as the new rule comes into effect, Tesla and GM would each start with 200,000 credits on their books.
The latest bill also changes the phaseout period. Instead of gradual reductions over four quarters, the credit would drop by 50% for a single quarter before being eliminated.
The GREEN Act would also allow used-car buyers to claim up to a $2,500 tax credit. A qualifying EV must be at least two years old and the sale price cannot exceed $25,000. The bill would also create tax breaks for companies and municipalities purchasing heavy-duty EVs, including buses.
The section of the bill dealing with raising the cap:
The provision expands the qualified plug-in electric drive motor vehicle credit under Section 30D to apply a new transition period for vehicle sales of a manufacturer between 200,000 and 600,000 electric vehicles (EVs), under which the credit is reduced by $500. The provision replaces the current phaseout period (which begins at 200,000 vehicles) with a phaseout period that instead begins during the second calendar quarter after the 600,000-vehicle threshold is reached. At the start of the new phaseout period, the credit is reduced by 50% for one quarter and terminates thereafter. For manufacturers that pass the 200,000-vehicle threshold before the enactment of this bill, the number of vehicles sold in between 200,000 and those sold on the date of enactment are excluded to determine when the 600,000-vehicle threshold is reached.