Bill Changing EV Tax Credits Passes Ways and Means Committee
A bill that would change a number of tax provisions, including tax credits in the Inflation Reduction Act that govern where critical minerals, advanced batteries and electric vehicles can be sourced, passed the House Ways and Means Committee on a party-line vote.
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Before the June 13 vote, Chairman Jason Smith, R-Mo., said, "We are doing away with the very worst of Democrats’ special interest handouts for the wealthy -- including subsidies for electric vehicles that have become a windfall for China under the loose critical minerals regulations the Biden Administration has pushed."
The current electric vehicle tax credit is complex. Leased vehicles can qualify from all automakers, with no content requirements. Purchased vehicles are subject to a buyer income cap, a price cap on the vehicle, and must be assembled in the U.S., Canada or Mexico. If all those requirements are met, half of the $7,500 tax credit is dependent on a North American battery components threshold, which is 50% this year, and ramps up over time; the other half is based on critical minerals' sourcing. Those critical minerals must be either extracted or processed in the U.S. or a free trade partner, and the Treasury Department has expanded that definition beyond comprehensive free trade agreements, to include Japan.
By 2024, no battery components are allowed from China; by 2029, all battery components must be North American. By 2025, no critical minerals may be processed in China or mined by a Chinese company, and by 2027, 80% of the critical minerals would have to be domestic or sourced from FTA partners.
Smith's bill accelerates those timelines, immediately going to 80% for critical minerals and 100% for batteries, and says that an FTA "is an international agreement approved by Congress that eliminates duties and other restrictive regulations of commerce on substantially all the trade between the United States and one or more other countries."
It also eliminates the leased car loophole and restores a previous tax credit rule, which was that once a manufacturer sold 200,000 cars, its cars were no longer eligible. That would eliminate eight models from General Motors and Tesla. However, given the end of the ramp-up for battery and critical minerals sourcing requirements, it's not clear whether the two Rivian models, three Ford models and one VW model that currently qualify would be eligible.
The Joint Committee on Taxation estimated that from 2023 to 2033, the changes in the clean vehicle tax credit -- not including the end of the leased vehicle tax credit -- would save the government almost $100 billion.
The likelihood the Senate would take up the bill is not good, because the 24-18 vote shows there was no Democratic support for the package.