Electric vehicles (EVs) are supposed to be one way to cut fossil fuel emissions and help slow, if not stop, climate change.
But the best laid plans often go awry when lawmakers get involved.
A $7,500 EV tax credit was part of the climate-related tax provisions in the Inflation Reduction Act achieve change. But it came with limits, with the full amount applying only to EVs and plug-in hybrids assembled in North America.
Then this week, the Treasury Department further tightened the EV credit rules. Now a certain percentage of the components and minerals in the vehicles' batteries come from the United States or our trade allies.
That means that right now only 11 electric cars from four automakers (Tesla, General Motors, Ford Motor, and Volkswagen) qualify for the full $7,500 credit.
And now a U.S. Senator who helped write the EV provisions, which some argue already are creating chaos for consumers, wants to revisit the tax break regulations.
Seeking a credit do-over: Sen. Joe Manchin (D-West Virginia) today sent a letter to the U.S. Government Accountability Office (GAO) seeking a legal opinion on whether the Treasury guidance is subject to review under the Congressional Review Act.
Manchin, who chairs the Senate Energy and Natural Resources Committee, says Treasury's guidance actually will make it easier for Chinese companies to take advantage of the EV tax credit.
The senator, who is retiring after he completes his current term next year, argues in his letter to U.S. Comptroller General Gene L. Dodaro that Treasury's guidance effectively is a final, not proposed, rule.
Such a determination would give Congress the chance to revisit, and possibly reverse, the law under the Congressional Review Act.
Regs rewrite the law: Manchin contends that Treasury's regulations rewrite parts of the law, and in effect —
- cut the battery critical minerals requirements in half;
- water down the battery component requirements by applying a new notion of constituent materials not found in the law; and
- flout the requirement that critical minerals must be extracted or processed in the United States or a "country with which the United States has a free trade agreement in effect," calling the phrase "free trade agreement" a "well-established term of art."
Manchin also accuses Treasury's latest proposal of continuing "in this freewheeling vein."
He argues that Treasury's Dec. 4 proposal rewrites clear statutory requirements by suspending two of the law's statutory prohibitions, one from Jan. 1, 2025, to Jan. 1, 2027, and the other from Jan. 1, 2024, to Jan. 1, 2027.
Those delays, argues Manchin, enable "electric vehicles that contain critical minerals or battery components sourced from foreign entities of concern placed in service over the next 3 years to qualify for the tax credit in spite of the statutory prohibitions — and this allowance is effective in a matter of weeks regardless of whether Treasury ever issues a 'final' version of the proposal at some later date."
Final rule would allow Capitol Hill revisit: Looking past the proposed rule label and treating the Treasury regulations as a final rule in view of the binding legal effect they already have on application of the EV tax credit will further the purpose the Congressional Review Act, wrote Manchin.
And that, he says, will allow Congress to review and disapprove a rule that "plainly does not accurately reflect the intent of Congress" in its original approval of the law.
If GAO agrees with Manchin, and Congress does vote — and change — the EV tax credit regulations, get ready for a whole new round of tax chaos, especially for EV owners who buy vehicles under the existing proposed (or final?) rules.
You also might find these items of interest:
- Texas joins the electric vehicle fee club on Sept. 1, 2023
- In claiming potential $7,500 EV tax credit, note delivery date & other rules
- Good EV tax credit news for used Teslas, EV lobbying by Vietnamese automaker
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