Green tax credits benefit wealthier households most

Top 5% receive 50% of tax credits for electric vehicles.

A recent economic working paper has found something that should be no surprise to anyone: Wealthier households reap the most benefit from U.S. tax credits for heat pumps, solar panels, and electric vehicles.  

The authors, Severin Borenstein and Lucas W. Davis, write in the abstract:

Using information from tax returns, we show that these tax credits have gone predominantly to higher-income households. The bottom three income quintiles have received about 10% of all credits, while the top quintile has received about 60%. The most extreme is the tax credit for electric vehicles, for which the top quintile has received more than 80% of all credits. The concentration of tax credits among high-income filers is relatively constant over time, though we do find a slight broadening for the electric vehicle credit since 2018.

Between 2006 and 2021, U.S. households have received $47.7 billion in tax credits for various green technologies. Residential solar was the largest, with $24.9 billion, with energy efficiency coming in at $17.3 billion. Households received $5.5 billion in EV tax credits, “with a peak of $1.5 billion in 2018 before the tax credit was phased out for Tesla and GM.”

A quintile is simply one-fifth of the dataset. The top quintile of households received 60% of all tax credits for residential solar installations.

Tax credits for electric vehicles were the most steeply skewed toward wealthier households, with 80% of tax credits going to the top quintile. (The bottom three quintiles — so 60% of federal tax filers in the study — only received 3% of EV credits). Shockingly, the “top 5% has received about 50%.”

While one might argue that this is due to wealthier households buying new cars in general, the EV credit “is even more concentrated among the highest income quintile than new vehicle spending overall.” The study cannot account for equipment (like solar panels or EVs) that are leased rather than purchased, but the authors conclude leasing is “unlikely to be substantially biasing.”

It also doesn’t seem like the tax credits motivate households to adopt technologies that they weren’t already going to invest in. “The cost effectiveness of tax credits hinges on their ability to increase adoption of clean energy technologies,” the authors wrote. “Overall, we find little correlation between tax credits and technology adoption.”

This piece was originally published in Center of the American Experiment on July 24, 2024. https://www.americanexperiment.org/green-tax-credits-benefit-wealthier-households-most/