The Biden administration is seeking to give $12,500 in tax credits to buyers of new electric vehicles. The purchased vehicles must be made by American union workers in the US. Called the “Clean Energy for America” bill, the US Senate Finance Committee just advanced the legislation yesterday. 

Here’s how the EV incentives would work

The $12,500 would apply to vehicles with a retail price at or lower than $80,000. Right now there is a credit available but it is $7,500, and neither GM nor Tesla vehicles qualify. That’s because both exceeded 200,000 EVs sold which is the cap allowed by the current legislation. 

Once 50 percent of US passenger vehicle sales are reached, the credit would phase out over a three-year period. Besides the proposed credit there are other green energy tax incentives according to Reuters. Plus, the legislation would eliminate or at least substantially reduce fossil fuel tax advantages.

The $12,500 figure starts with the current $7,500 tax credit first. Then, $2,500 is added if the vehicle is made in the US. An additional $2,500 for vehicles assembled by union labor. So automakers like Tesla and Volkswagen would see their vehicles credited less because they don’t have union labor.

The EV incentives must still pass the Senate and House of Representatives

The cost would add $31.6 billion through 2031 based on congressional estimates. It still has to pass both the Senate and House of Representatives. With Congress having Democrats in the majority that should not be a problem. The Senate has a 50-50 split with Vice President Kamala Harris the tie-breaker, so it should pass there as well.

Along with the tax credits for consumers, there is also a potential 30 percent credit for manufacturers. It would be applied to new or retooled plants for green energy tech. It also includes incentives for electric commercial vehicle purchases. 

Not everyone is happy about this proposal

Of course, politics always comes into play over such large payouts. Some politicians complain that this is an assault on the fossil fuel industry. But that industry has received substantial government help over the last 100 years. Now we have a climate crisis. 

It is hoped that as the world shifts away from the oil and gas industry, that it would change with it. The Biden administration also sees new jobs necessary to build up our green and electrical tech. And then there is the labor necessary to build out infrastructure and components that would open hundreds of thousands of new job opportunities. This would offset the eventual reduction of fossil fuel demand.