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Budget Update: Proposals Face Long Odds, Criticism from Business Groups

Sept. 17, 2021
Tesla, Toyota and Honda are crying foul at proposed union-built-EV tax credits.

Discussion of President Biden’s $3.5 trillion plan picked up this week after the Ways & Means Committee discussed proposed changes September 13 through 15. In addition to including a smaller-than-previously-planned corporate tax increase, the plans put UAW-represented automakers at odds with Toyota, Honda, and Tesla over changes to electric-vehicle subsidies. The budget still faces stout resistance from Republicans as well as key budget-conservative Democrats.

Originally included as part of the President’s infrastructure bill, the $3.5 billion budget bill still includes increased taxes on top-earning individuals and companies and funding for things like clean energy, housing, and expanding Medicare, with some changes. Notably, the version discussed in committee would increase the corporate tax rate from 21% to 26.5%—lower than previous proposals, which would have set the corporate tax rate as high as 28%.

The National Association of Manufacturers criticized that proposal, as it has the idea of a 28% corporate tax rate. A senior VP at NAM, Aric Newhouse, said in a statement that “there’s no getting past the fact” that increasing the corporate tax rate would reduce new jobs created.

Newhouse cited a NAM survey that found 91% of manufacturing respondents would have a harder time raising wages with higher taxes and said the 2017 tax code led to historic job growth in manufacturing. “Reverting to archaic tax policies” would have the opposite effect, Newhouse said.

Extra Subsidies for Union-Built EVs?

While the measure’s corporate tax rate increase has faced persistent criticism from business groups, the latest round of edits introduced a new point of contention for U.S. automakers: Expanded subsidies for EVs built in the U.S. by union-represented employees.

According to the UAW, purchases of electronic vehicles are currently subsidized with a $7,500 tax credit for an automaker’s first 200,000 EVs sold. Both General Motors and Tesla have already passed the 200,000 vehicle threshold.

A proposed budget provision, put forth by Representative Dan Kildee, a Democrat from Flint, Michigan, would remove that threshold and add an extra $4,500 tax credit for electric cars built by union employees and $500 more for U.S.-made batteries, for a total tax credit of $12,500 for a U.S.-union-built EV that uses American batteries.

Honda, Toyota, and Tesla have all complained that the extra money for union-built cars discriminates against their operations.

Honda, in a statement released September 12, said the proposed expansion is “unfair” and discriminatory against nonunion U.S. autoworkers. “If Congress is serious about addressing the climate crisis, as well as its goal to see these vehicles built in America, it should treat all EVs made by U.S. auto workers fairly and equally,” it said. In a letter to Congress reported by the Associated Press, Toyota Motors said the union-only tax credit was not only “biased” but “exorbitant.”

Tesla CEO Elon Musk wrote on social media that the proposal sounded like it was “written by Ford/UAW lobbyists, as they make their electric car in Mexico.” While Ford’s electric Mach-E Mustang is currently being built in Mexico, those vehicles won’t qualify for the tax credit, and Ford says future Mach-Es will soon be built in Michigan.

United Auto Workers President Ray Curry praised the provision and Kildee for proposing it. “I commend Representative Kildee for crafting legislation to protect and create more good paying union jobs for years to come,” said Curry. The UAW has previously expressed concern over the rise of electrified vehicles, which have less parts than conventional vehicles and require fewer workers to assemble.

The Budget’s Uncertain Path Forward

Democrats are walking a knife’s edge to pass the budget. In the face of unanimous Republican opposition, the bill’s only hope for survival is unanimous Democratic support, which it currently does not have.

Democratic senator Joe Manchin of West Virginia, a key holdout, said this past weekend that he “cannot support $3.5 trillion.” Manchin prefers a budget closer to $1 or $1.5 trillion, he said, and he opposes any corporate tax rate more than 25%—1.5% less than the current proposals call for. Democratic senator Kyrsten Sinema of Arizona has also rejected the budget’s cost.

Democrats aiming to pass the bill using the budget reconciliation project need all 50 Senate Democrats, including Manchin and Sinema, to vote in favor of the bill to pass it without any Republican support.

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