Redistribute Tax Incentives to Buy Electric Cars

Betsy, a banker, drives 2500 miles per year in her sedan. She uses 75 gallons of gas. Roy, a carpenter, drives 30,000 miles per year in his pickup. He uses 1500 gallons. If Betsy and Roy both trade in their gas-powered vehicles for electric vehicles, Roy’s reduced gasoline consumption will be 20 times that of Betsy’s. Should they be eligible for the same cash incentives?

The answer to this algebra problem is “of course not.” But in the real world, Betsy and Roy’s cash incentives are identical.

Incentives for the purchase of electric vehicles (EVs) are available from the federal government (up to $7500), from state governments (in New Jersey, up to $5000; in New York, up to $2000; in California, up to $4500), and from local air districts and utilities. All these subsidies are given out regardless of how much gasoline is being saved.  The reconciliation bill now working its way through Congress will likely increase federal incentive payments; how they’ll be structured is still being debated. We think they should be structured to give Roy a much bigger incentive and Betsy a much smaller one.

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