California will step up to provide electric vehicle rebates if President-elect Donald Trump does away with the $7,500 tax credit, Gov. Gavin Newsom says.
Trump is expected to pressure Congress, The New York Times said, to do away with the federal tax credit that has helped fuel electric vehicle growth in the U.S.
California had a rebate for zero-emissions vehicles from 2010 to 2023. It started with a $5,000 direct-to-consumer rebate for battery electric vehicles that eventually increased to $7,500.
Critics have already argued California’s budget is tight and adding another expense is not ideal. California’s nonpartisan Fiscal and Policy Officer warned recently that the state’s budget does not have the capacity for new commitments.
Q: If the federal tax credit goes away, should California offer its own rebate for EVs?
Economists James Hamilton, UC San Diego
NO: A $7,500 subsidy would lower the cost of an electric car by 15%, which might result in a 15% increase in the number of electric cars sold. That means that for every $7,500 California would pay to get somebody to switch to electric, we would pay $50,000 in subsidies to people who would have bought an electric car anyway. Most of those buyers are richer than the average Californian. We should encourage electric cars, but the costs here outweigh the benefits.
Norm Miller, University of San Diego
NO: While I was a 2012 beneficiary of both federal tax credits and California rebates, I don’t think it is wise for a single state to try and replace demand inducing tax credits or choose among industry competitors who deserves help and who does not. My preference would be that our government(s) support primary and sometimes risky research at university labs to push the state of the art, but not pick winners nor distort market demand.
David Ely, San Diego State University
NO: The recent Legislative Analyst Office’s fiscal outlook report notes that the 2025-26 budget is roughly in balance due in part to tax revenue growth driven by the stock rally rather than strength in the broader economy. Thus, the budget lacks the capacity to fund new programs like a revived state rebate program. Also, a rebate program that excludes popular Tesla vehicles, as the governor is considering, will have a limited impact on EV purchases.
Caroline Freund, UC San Diego School of Global Policy and Strategy
NO: Tax credits for EVs are an expensive and inequitable way to reduce emissions. Most of the benefit accrues to wealthier residents who can afford new cars and have access to charging stations. Taxing fuel (and more generally carbon emissions) and redistributing revenue to the most vulnerable would be more efficient and is revenue neutral. Offering a California-only rebate for EVs would be especially problematic now, given the large budget shortfall. To the extent the goal is to create jobs, there is no guarantee those jobs will be local.
Kelly Cunningham, San Diego Institute for Economic Research
NO: Subsidies impose disproportionate costs on lower-income consumers to benefit higher-income users. Electric vehicles should be viable without making taxpayers subsidize wealthy users able to afford the costs. Zero-emission vehicles are only as clean as the electric power sources they plug into, which the increase may arguably exceed emissions of newer internal combustion vehicles. In any case, California is not in position to take on additional costs already facing double‑digit operating deficits for years to come.
Alan Gin, University of San Diego
YES: The electric vehicle market is significant and will continue to be in the future. The EV tax credit is important to maintain competition in that market. The $7,500 rebate has allowed other manufacturers to eat into Tesla’s market share and eliminating it will allow Tesla to continue its dominance. That is why Elon Musk thinks eliminating the rebate will be a long-term benefit to the company, even though it might have a negative impact on sales in the short run.
Executives Chris Van Gorder, Scripps Health
NO: The last time I checked, California had a budget deficit and was projecting to have another deficit next year. This deficit caused the state not to fund programs much more significant to the public welfare than offering a rebate to purchase an EV. I think it is important to prioritize the use of taxpayer funds by focusing on current health and public safety needs like health care, mental health, public safety, education and homelessness.
Jamie Moraga, Franklin Revere
NO: I do support EV rebates and credits but not when the state budget can’t afford it. California is still digging itself out of its $165 billion debacle from 2022. Add in last month’s state Fiscal Outlook report from the Legislative Analyst’s Office, and even California’s Assembly Speaker emphasized the necessity for financial restraint, cautioning against the expansion of programs or services in preparation for potential economic challenges. Now isn’t the time to offer rebates.
Phil Blair, Manpower
YES: The environment is very important to Californians. We need to also do our part as the largest economy in the U.S. to support issues we believe in, despite the future administration’s ultra conservative initiatives.
Gary London, London Moeder Advisors
NO: I am an admitted hypocrite, having received these tax credits. But with the mandate in California to shift to electric autos by 2035, these autos will be bought without tax credits. The bigger incentive would be for the cost of these vehicles to come down. But that is a tariff debate for another day. I recommend that the state focus on incentives to adapt gas stations to electric stations, because refueling is the bigger obstacle.
Bob Rauch, R.A. Rauch & Associates
NO: California’s economy has experienced a slowdown for nearly two years. Inflation and sluggish private job growth have led to weak consumer spending. Outside of government and health care, the state has not added any jobs in the past 1 1/2 years. High taxes, an increased minimum wage, and climate regulations, among other progressive policies, have contributed to California’s economic struggles, leaving the state’s budget unable to accommodate new commitments.
Haney Hong, San Diego County Taxpayers Assoc.
NO: California has already intervened in the EV market with a 2035 requirement that everything new must be electric by then, so a state EV credit is just overkill. Plus, if California has cash to spend – which, by the way, it really doesn’t – why wouldn’t we just invest in things where everyone can benefit: electricity and water rate relief, road repair, or public facility maintenance?
Not participating this week:
Austin Neudecker, Weave Growth
Ray Major, economist
Have an idea for an Econometer question? Email me at phillip.molnar@sduniontribune.com. Follow me on Threads: @phillip020
Originally Published: December 6, 2024 at 5:13 AM PST
