I have long favored a carbon tax to deal with global climate change. But I understand that if our leaders lack the political courage to propose one, targeted subsidies, such an electric vehicle tax credit, can be a substitute, albeit an imperfect one. In today's paper, I learned that, unfortunately, the design of this credit in the so-called Build Back Better bill aims not only at addressing climate change but also at reducing competition in the labor market and impeding international trade:
The credit is $8,000 if the vehicle is made at a non-union U.S. plant, but rises to $12,500 if it’s made in a union-organized plant. The credit drops $500 if the car’s battery isn’t made in America, and after 2026 only cars assembled in the U.S. would qualify for the basic $7,500 credit.
So the bill neglects the obvious first-best policy, starts with a second-best policy, and adds various extraneous provisos to make it worse.