Republicans call to add $1,000 tax on new EVs, end tax credit

• Trump can’t end EV tax credit; Congress can
• Proposed bill would end new EV, used EV, and commercial EV credits
• EV leasing loophole goes away with commercial credit (45W)
• Up-front federal EV tax of $1,000 proposed in addition to state EV surcharges

As bold as President Trump’s initial executive actions relating to EVs might be, they don’t yet directly affect car shoppers’ ability to claim the $7,500 EV tax credit, or to access bargain EV leases. 

For that, it would take an act of Congress. And based on bills introduced this week, that act may be quite close. 

On Wednesday, Sen. John Barrasso, R-Wyo, with a group of 14 Republican senators signed on as co-sponsors of the bill, introduced legislation that could effectively end the EV tax credit. 

If adopted by Congress it might take effect as soon as 30 days after enactment. That might be a hard pill to swallow for a number of automakers; GM and Ford are reportedly among those seeking a gradual EV tax credit phaseout. 

The EV tax credit isn’t just one tax credit, but three different EV affordability credits—and, some would say, subsidizing the American industry behind them. In addition to IRS 30D, commonly known as the EV tax credit, the bill includes the Used Clean Vehicle Credit (25E) for used EVs, and the Commercial Clean Vehicle Credit (45W) for fleet EVs.

The commercial vehicle credit contains one of the most controversial pieces of the EV tax credit—the so-called “leasing loophole,” which was the result of a Treasury Department interpretation that many lawmakers said doesn’t keep to the original intent of the law. It effectively allows automakers’ captive credit companies to capture a $7,500 tax credit for each EV they lease—regardless of the sticker price of the EV or where it was built. 

That fueled a leasing boom for EVs over the past couple years, allowing automakers to offer attractive lease prices that in many instances undercut those of hybrids or other gasoline models, and allowed shoppers to bypass stricter rules about income and vehicle origins that applied to purchases. 

That aside, the latest iteration of the EV tax credit—for those who buy rather than lease—has narrowed the number of shoppers and vehicles eligible. To claim a credit of up to $7,500, buyers must meet household-income requirements, and the vehicle must meet a set of criteria for American assembly, EV battery sourcing, and battery materials. The vehicle must also be offered below a price ceiling of $55,000 or $80,000 depending on the vehicle type. 

But in serving its purpose of aiding affordability up front, the EV tax credit did become a point-of-sale rebate that can be claimed at the dealership starting in 2024. 

The oil industry appears eager to see the tax credit end. A release on the bill from Barrasso included a quote from Chet Thompson, the president and CEO of the American Fuel & Petrochemical Manufacturers (AFPM), emphasizing that “it’s time for EVs to compete on a level playing field.” 

According to the Environmental and Energy Study Institute, the U.S. provides about $20 billion in fossil fuel subsidies annually, with about 80% of that going to natural gas and crude oil.

Meanwhile, a companion bill, introduced Wednesday by Senator Deb Fischer of Nebraska, aims to tax EVs $1,000 at the point of sale for road use—which the bill says is the average amount consumers currently pay through gas taxes over a span of 10 years. A different, tiered structure would apply to heavy-duty electric trucks. 

Such a one-size-fits-all strategy for paying for EV road use, however, ignores the fact that in the U.S.—according to the federal government itself—EVs are driven less. According to the DOE, they cover 12% fewer miles on average than gasoline vehicles and 29% fewer miles than diesel models. 

The federal fee would impact EV buyers in addition to premiums already levied for EV use or ownership by individual states. It’s an issue that many have stepped up to address with various solutions, nearly all ultimately sidestepping the question of whether there could be an “electric fuel” tax for EVs that, like gasoline, is based on real-world use.