U.S. EV Tax Credit Stays at $7,500

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A proposal to increase a federal tax credit for purchases of new electric vehicles died in the United States Senate last month, leaving in place a $7,500 credit that is phasing out for popular manufacturers.

The proposal, part of President Joseph Biden’s Build Back Better plan, would have raised the credit to $12,500 per vehicle but applied it only to vehicles manufactured in the country by union workers. Democratic senators dropped the proposal, conceding that it had no chance of passing.

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Biden had couched the increased credit as a way of supporting a shift to greener transportation and American industry, but it attracted criticism from a number of sides. Some in U.S. government described it a needless commitment of federal spending, given that there are long waiting lists of Americans trying to purchase EVs.

Meanwhile, countries with strong auto sales in the U.S. called the proposal protectionist.

The existing $7,500 credit was implemented in 2009 and has been the main federal subsidy for EVs. Proponents have viewed it as essential for encouraging the uptake of EVs by narrowing the cost gap with cars propelled by internal combustion engines.

The credit has already expired for a couple automakers, however, and is on the way to expiring for others. The credit applies to plug-in hybrids and vehicles running solely on battery and can be claimed for the first 200,000 units sold by each manufacturer. After that number of sales, the credit is halved for six months and then halved again before ceasing altogether a year after the threshold is reached. The credit has already been phased out for GM and Tesla, and Ford, Nissan and Toyota were all within 50,000 of reaching the threshold by the end of 2021.

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