In 2022, the federal government recognized the vital role of EVs in combating climate change, improving public health, and keeping the U.S. auto industry globally competitive. To spur EV adoption and increase Americans’ access to and the affordability of EVs, Congress passed legislation called the Inflation Reduction Act (IRA), which President Biden signed into law. The IRA catalyzed $500 billion in private-sector manufacturing jobs. It lowered healthcare costs by capping insulin and prescription costs, providing free vaccines to seniors, and empowering Medicare to negotiate prescription drug prices. The IRA is also the largest-ever climate investment in U.S. history, offering tax credits on energy-efficient electric heat pumps, home energy efficiency improvements, rooftop solar or battery storage, and–our personal favorite–clean vehicle tax credits for both new and used EVs.
The impact of the IRA is huge. Since the tax credits became transferable on January 1, consumers have saved $1 billion on their clean vehicle purchases. Additionally, the credits have catalyzed monumental growth in domestic EV battery and charger manufacturing. Private companies have announced commitments of $177 billion to manufacture EVs and batteries. According to a study commissioned by the BlueGreen Alliance from the Political Economy Research Institute, the climate, energy, and environmental investments of the Inflation Reduction Act, including EV tax credits, will create more than 9 million jobs over the next decade, an average of nearly 1 million jobs each year. One of the most important things to know about the IRA is that it is funded by taxes on large corporations and a 1 percent tax on stock buybacks and reductions. While hardworking Americans benefit from the law, middle-class taxpayers don’t fund it.
The federal rulemaking process
When a bill is passed, it becomes the responsibility of the relevant federal agency (in this case, the U.S. Department of Treasury and the IRS) to interpret the legislation and develop rules for enactment. The IRA includes significant changes to the clean vehicle tax credits to meet competing goals, including building energy security, accelerating an equitable clean vehicle transition, and developing a domestic supply chain for EVs. As a result, the EV tax credits are complicated. The Treasury and the IRS embarked on a robust public rulemaking process that took into account the ideas and suggestions of hundreds of stakeholders and took about a year and one-half to complete.
Finalized EV tax credit guidance
After this comprehensive rulemaking process, the recently finalized rules outline how the tax credit can save consumers up to $7,500 on a new EV and up to $4,000 on a used EV. The rules specify that the tax credits are transferrable, meaning they can be redeemed at the time of purchase, allowing consumers to use them as a down payment, lower their monthly payments, and enable lower-income consumers to access the money even if they don’t pay much in taxes.
Despite this due diligence, some members of Congress who aren’t supportive of clean transportation (and are likely funded by the oil and gas industry) are not happy with the final rules for the EV tax credits. Recently, a bill has been introduced in Congress (H.J.Res.148/S.J.Res.87) to use the Congressional Review Act (CRA) to roll back the final rules on the EV tax credits.
The Congressional Review Act
A CRA is essentially a statement of disapproval from Congress. First enacted in 1996, it is a tool that gives Congress procedures to introduce legislation to overturn agency regulations. Rules can only be overturned if both houses of Congress agree on a joint resolution of disapproval by a simple majority vote. If the president signs the CRA or Congress successfully overrides a presidential veto, the regulations will be voided.
President Biden is almost certain to veto the CRA, and it is unlikely that two-thirds of each chamber will approve this resolution of disapproval. That said, a joint resolution of disapproval sends the message that the Department of Treasury’s rulemaking is not the law’s intent and could open the door to future lawsuits.
What a CRA would mean for the clean vehicle tax credits?
If the resolution succeeds or Congress successfully overrides a presidential veto, the finalized rules would go out of effect immediately and “shall be treated as though such rule had never taken effect.” Additionally, the Internal Revenue Service and Treasury would be prohibited from reissuing a rule in “substantially the same form.” Since the provisions of the tax credits are statutory, meaning they are written into law, the tax credits themselves wouldn’t go away. Still, the clarity provided by the final guidance would be gone – creating significant confusion.
The passage of a CRA would roll back agency regulations on the clean vehicle tax credits, which, because of their complexity, would make the proposal and finalization of any future guidance implausible. Without final guidance, automakers would not be able to determine if their vehicles meet the requirements for the credit. Dealers would also not know which vehicles qualify for the credit. Ultimately, this lack of guidance would lead to consumer confusion and the inability to access the EV tax credits. Additionally, this would eliminate a dealership’s ability to offer the credits as upfront payments, which ensures that all drivers, regardless of tax liability, can access the full value of the incentive.
What would happen if the final rules implementing the clean vehicle tax credits were overturned?
It would be a tremendous loss for American consumers, workers, industries, and energy security. The billions of dollars in private-sector investments in the U.S. manufacturing of EVs and batteries would be at risk. These investments and new jobs rely on the clarity provided by the final regulations issued by the Treasury and the IRS. Since the passage of the Inflation Reduction Act in 2022, we have seen a massive influx of investments in EV and battery manufacturing, creating over 82,000 jobs so far. Investments have flowed to states like Ohio, Kentucky, Arizona, South Carolina, Alabama, Georgia, Pennsylvania, Michigan, Nevada, and more. Additionally, eliminating the new and used clean vehicle credits would result in consumers losing billions of dollars in savings, both in initial purchase costs and in the long-term benefits of driving an EV compared to a gas-powered vehicle.
The EV tax credit is one of the most powerful incentives in the IRA for building out a domestic supply chain. Rolling back the Treasury’s final guidance using the CRA would slow down supply chain diversification, not accelerate it. Removing the clarity in the final assembly requirements and battery content requirements would effectively eliminate the financial incentive for onshoring EV manufacturing and supply chain development.
Conclusion
The clean vehicle tax credits and the clarity provided by the finalized rules are critical in addressing the climate crisis, improving air quality, making driving electric more affordable and accessible, spurring domestic automotive manufacturing, and bolstering supply chains in the U.S. The IRS and Treasury conducted a thorough regulatory process, considering input from a broad group of stakeholders nationwide on implementing the EV tax credits. Any move to dismantle these rules puts politics over progress and is at the expense of the American people, our economy, and our climate.
