Research: The Inflation Reduction Act's Costly New Tax Credits for Electric Vehicle Batteries
The U.S. Congress passed and President Biden signed into law the so-called “Inflation Reduction Act” (IRA) in August 2022. The IRA includes many provisions which are now estimated to cost $1.2 trillion over a decade per Goldman Sachs’ more recent analysis compared with the Congressional Budget Office’s (CBO) initial estimate of $391 billion.
Part of this substantially higher estimated cost is because of the new cost estimates for tax credits for electric vehicle (EV) battery cells and modules manufactured in the U.S. Instead of the initially estimated cost of $30.6 billion by the CBO, new estimates based on more precise projections and growth in the EV market indicate that this could be as high as $196.5 billion (540% higher than initially estimated) per the Mercatus Center and Goldman Sachs. This higher estimate appears more accurate than the original CBO estimate given the large increase in the EV market and the expanding use of these tax credits.
Given that the cost of these subsidies passed by Congress and communicated to the public appears to be substantially undervalued, the CBO and other nonpartisan agencies and committees responsible for providing Congress with accurate revenue estimates and sound economic analysis should reexamine their calculations.
Originally published at Americans for Tax Reform.
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Vance Ginn, Ph.D.