Clean Energy Tax Credits Mostly Benefit the Wealthy, Report Says

Photo (cc) by Helena Wright

The wealthy are benefiting disproportionately from tax credits designed to encourage households to make green-energy purchases for their homes and vehicles, new research shows.

A new working paper from the Energy Institute at Haas in the Haas School of Business at the University of California, Berkeley, focuses on what the nonprofit Tax Foundation describes as “the four most significant clean energy tax credits that apply to households.”

American households have received more than $18 billion in federal tax credits of this kind since 2006, according to the working paper, titled “The Distributional Effects of U.S. Clean Energy Tax Credits.”

The working paper was written by Severin Borenstein, professor of business administration and public policy at the Energy Institute, and Lucas Davis, associate professor of economic analysis and policy at the Haas School of Business.

Based on tax return data, Borenstein and Davis found that tax filers with adjusted gross incomes of more than $75,000 receive about 90 percent of tax credits for electric vehicles.

They also receive about 60 percent of credits for residential energy efficiency, residential solar energy and hybrid vehicles.

Davis explains in an Energy Institute blog post that possible explanations for this imbalance include:

  • Unlike many other tax credits, these are nonrefundable. That means households can use them to offset their tax liability but cannot receive a net payment from the Internal Revenue Service, which is the case with some other tax credits. This is noteworthy because a significant number of tax filers, who tend to be lower-income, don’t owe taxes.
  • Renters — who are more likely to be lower-income than homeowners — are ineligible for most of these types of credits.
  • Lower-income households may not be able to afford electric vehicles, even after credits are factored in.

To learn more about tax credits in general, check out “Pop Quiz: Is It Better to Have a Tax Credit or a Tax Deduction?

Have you taken advantage of any clean-energy tax credits? Let us know which ones — leave a comment below or on our Facebook page.

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