Should income dictate eligibility for electric vehicle rebates?

Once again, California’s popular Clean Vehicle Rebate Program is in need of funding. On top of a $7,500 federal tax credit, California residents who buy an electric vehicle are eligible for a $2,500 rebate (or $1,500 for a plug-in hybrid). The program has been so successful that it keeps running out of money, as California is the number one state for EV adoption partly due to the generous rebates.

Now a new bill proposes additional incentives for lower-income buyers to be partially funded by capping rebate eligibility at a certain income level, reports the LA Times.

What to do when the well runs dry...

Back in April, the state’s Air Resources Board floated the idea of removing the rebate for plug-in vehicles with a price tag above $60,000. As we opined at the time, the move would have made a lot of sense but also would have been unfair to Tesla, which makes the only $60,000-plus electric car produced in significant volumes.

Thankfully for Tesla, the proposal was dropped as the state provided emergency funding to temporarily extend the rebate program. Over 13,500 people are still on the waiting list, however. It is clear that the Clean Vehicle Rebate Program is running on borrowed time without a long-term solution. It may be that it doesn’t need a long-term solution; some would argue that California’s time for additional EV rebates has passed.

A new proposal with a familiar premise

Remember, the initial proposal was somewhat controversial because it reasoned that customers in the market for a $60,000+ car did not need an extra $2,500 boost from the state. Some Tesla owners argued that the state rebate played a significant role in their purchase decision, but the LA Times reports that almost half of Tesla owners who received rebates have a household income over $300,000 per year.

In addition, four-fifths of California state rebate recipients to date report household income above $100,000. Electric cars are typically priced out of the range of most households making less than that amount, but the state’s logic is that increasing rebates for low-income buyers coupled with falling EV prices will begin to change that.

In the proposed State Bill 1275, the Air Resources Board would be required to set a cap on income eligibility for the clean vehicle rebate. The focus of the bill, however, is on expanding electric vehicle adoption to lower-income and more heavily polluted communities that need the zero tailpipe emissions the most.

The LA Times cites an example where a family of four with a $53,000 household income could get the existing $2,500 rebate for purchasing an electric car, then add on $1,500 for retiring a high-polluting vehicle, then another $3,000 check for a clean air vehicle intended for low-income buyers.

If this family chose to forego cars altogether, the state under the proposal would provide a $3,000 incentive for turning in an old car and purchasing alternative mobility like a bus pass or a car-share membership.

It is important to note that a family with this income would likely not pay enough in taxes to reap the full benefits of the $7,500 tax credit. All the same, the proposed incentives would bring the $29,000 starting price of a Nissan LEAF down to an effective $22,000 without federal incentives. But that illustrates the problem California is up against: a family of four making $53,000 still will have difficulty affording that electric car without a bargain lease deal.

Should this bill become law?

The bill has passed the state Senate and will be considered by the Assembly’s appropriations committee, and must gain final passage by August 31 to move on to Governor Jerry Brown.

For his part, Sen. Kevin de Leon is focused on providing incentives to those that actually need them. "A $2,500 rebate to purchase an electric vehicle is not likely to matter to someone earning over $300,000 a year, but it does make a big difference to someone earning $60k a year," Senator de Leon pointed out. "Every community deserves clean air, regardless of wealth."

Though data has shown that most electric vehicle owners are not "wealthy" as the label is usually applied, the fundamental premise of this legislation is a good one: high-income EV buyers do not need the rebates and the money would be better spent incentivizing lower-income families to go electric.

It isn’t quite redistribution of wealth, or the dreaded S-word; rather, it gives a broader demographic a chance at electric vehicle ownership that it otherwise wouldn’t have had. Depending on where the Air Resources Board would set the income cap, the wealthier buyers might not even notice they missed out on the rebate.

We can debate how successful such a program would be – it can target low-income communities all it wants, but a family that lives from paycheck to paycheck is unlikely to even be considering a brand new car. It may find a sweet spot in the $60,000-$80,000 income range, where families can realistically afford a new car if the price is right.

What shouldn’t be debated, however, is that the underlying principle is sound. It might hurt Tesla a little bit, but if the income cap is set appropriately the proposed legislation shouldn’t be considered unfair to the wealthy.

What do you think? Feel free to leave comments below.