The Inflation Reduction Act Offers Green Welfare to High-Income Households

There are numerous critiques of Democrats’ Inflation Reduction Act, including that it raises taxes on those earning less than $400,000, won’t reduce inflation, and features the sort of budget gimmicks Sen. Joe Manchin (D-WV) previously decried. But one criticism—that the bill includes what House Ways and Means Republicans dub “green welfare” for high-income households—may prove harder for supporters to rebut. That’s because even the New York Times admits the legislation includes subsidies that only high-income households can afford to claim.

In an August 8 article titled “Electric Cars Too Costly for Many, Even with Aid in Climate Bill,” the Times notes the obvious—that “electric vehicles remain largely the province of the rich.” The reason? New electric vehicle prices are simply beyond the reach of most consumers:

. . . soaring prices of commodities like lithium, an essential ingredient in batteries, helped raise the average sticker price of an electric vehicle 14 percent last year to $66,000, $20,000 more than the average for all new cars, according to Kelley Blue Book.

Those factors, among other “bottlenecks,” will “take years to unclog,” according to the article. In the meantime, as the headline notes, federal tax credits of up to $7,500 in the Inflation Reduction Act will barely make a dent, leaving high-income households as the only ones who can afford most electric vehicles. That also reinforces the tone-deafness behind some Democrats’ recently proposed “solution” for high gas prices—that consumers should just buy an electric vehicle.

It remains to be seen whether consumers will even find qualifying vehicles to buy. Experts suggest “the vast majority” of current electric vehicles won’t qualify for the full new vehicle credit as written. But if qualifying vehicles are purchased, the nonpartisan Congressional Research Service (CRS) confirms such credits have a history of subsidizing higher-income households. Of prior tax credits for electric vehicle (EV) purchases, CRS reports that

In 2016, 57,066 individual taxpayers claimed $375 million in plug-in EV tax credits. EV tax credits are disproportionately claimed by higher-income taxpayers. Most of the tax credits (78%) are claimed by filers with adjusted gross income (AGI) of $100,000 or more, and those filers receive an even higher proportion (83%) of the amount of credits claimed.

The authors of the bill placed caps on the cost of new electric vehicles that can qualify for the subsidies—$55,000 for cars and $80,000 for trucks and SUVs. They also limited the annual income of qualifying purchasers at $150,000 for single and $300,000 for joint filers. That would disqualify the very top income households, while leaving the rest of even the highest income quintile eligible for tax credits. They’ll certainly need a high income to afford a $70,000 electric SUV, even counting the credit. The bill sets lower price and income thresholds for those claiming a $4,000 credit offered for used electric vehicle purchases. But few may be able to take advantage, as the Times notes the supply of used electric cars is “scarce,” and less than 20 percent fall under the $25,000 price cap.

The legislation also reups billions of dollars in subsidies for green home improvements (think solar panels and new appliances), which are also likely to flow disproportionately to upper-income households—and are not subject to income limits. The Wall Street Journal reports that

Some public-finance specialists say that the credits amount to a windfall for taxpayers who would have made energy-efficient home improvements anyway, and the incentive favors middle- and upper-income taxpayers. A 2018 Congressional Research Service paper showed that taxpayers with income of $200,000 and above received on average a credit that is approximately seven times the average credit received by taxpayers with income of $30,000 and below.

None of this is news. A 2015 study summarized that,

Since 2006, U.S. households have received more than $18 billion in federal income tax credits for weatherizing their homes, installing solar panels, buying hybrid and electric vehicles, and other “clean energy” investments. . . . We find that these tax expenditures have gone predominantly to higher-income Americans. The bottom three income quintiles have received about 10% of all credits, while the top quintile has received about 60%. The most extreme is the program aimed at electric vehicles, where we find that the top income quintile has received about 90% of all credits.

All of which shows that sometimes welfare—in this case, green welfare—can be for high-income people, too.