To E-Bike, Or Not To E-Bike? Should That Be A Tax Question?

Our son will turn 16 next month. In the fall, he’ll have a choice: Drive our small, fossil-fueled car to school, or walk or bike to his destination.

Is there a third option? We could buy him an e-bike. With a maximum speed of around 20 miles an hour, these bicycles with batteries that boost pedaling power are far less expensive than cars, reduce congestion on roads, and emit no carbon when in use. 

A variety of publicly funded e-bike rewards (think vouchers, rebates, or point-of-sale discounts) are in place through some state and local governments (though none where we live). Now, Reps. Jimmy Panetta (D-CA), Earl Blumenauer (D-OR.), Mike Thompson (D-CA), and Adam Schiff (D-CA) have proposed a federal tax credit for e-bike purchases. 

“By incentivizing Americans to own and use e-bikes, we are allowing them the chance to help improve the quality of life in our communities and tackle the climate crisis in our country,” Panetta said in a statement.

The congressmen reintroduced the E-BIKE (Electric Bicycle Incentive Kickstart for the Environment) Act in March. Sen. Brian Schatz (D-HI) has introduced a companion bill in the Senate. (The idea had been cut from the Build Back Better Act and left out of the Inflation Reduction Act.) 

The E-BIKE Act would provide a refundable 30 percent tax credit of up to $1,500 for the purchase of an e-bike. To get the full credit, a single filer’s income must be less than $150,000 (and for joint filers, less than $300,000). It would apply to e-bikes priced under $5,000 in the Senate bill, or under $8,000 in the House version.

But whether the goal is to provide broad access to e-bikes or to reduce carbon emissions and road congestion, a federal tax credit rewarding an individual’s e-bike purchase is not the best policy tool. 

The E-BIKE Act tax credit will reward some e-bike buyers for doing something they were planning to do—and could already afford—anyway. And for those who cannot afford luxuries, even with the refundable credit, it would be an expensive transaction to manage while waiting for a tax refund. Meanwhile, some of the top-rated e-bikes range in price between $1,300 and $2,700. Cargo e-bikes are more expensive but can be found for under $3,500. 

Before considering a subsidy, it’s also worth noting that the e-bike market is not struggling. It’s growing quite rapidly. E-bikes outsold both electric cars and hybrid vehicles in 2021, according to the Light Electric Vehicle Association. The US e-bike market size reached $847.5 million last year. IMARC Group estimates the market to reach $1.6 billion by 2028, or nearly 12 percent growth. (In part, this could reflect the growing availability of bike-sharing programs which can offer traditional and electrified bikes.)

Indeed, my TPC colleague and avid cyclist Len Burman tweeted, “It's not clear why you'd favor e-bikes over traditional bikes … Some people don't bike because they can't afford a decent traditional bicycle. A modest subsidy for a bike with or without a motor might spur them to buy a regular bike but not an e-bike.”

Regular bikes, after all, are “cleaner” than e-bikes. E-bikes require charging, and electricity might not always come from a renewable source. Rechargeable e-bike batteries must also be recycled so they don’t end up in landfills where they can leach toxic chemicals into the soil and water table.

What if you live in a town like mine, designed for cars, with few sidewalks and no bike lanes? Given the traffic I see, if we buy our son an e-bike (tax credit notwithstanding), I might be more nervous about him riding it to school than I would be about him driving a car. 

As with many proposed subsidies, there are likely more efficient ways to reach the same goal. Investment and improvement in public infrastructure—not a tax credit for an e-bike—would make all low- or no-carbon-emitting activities (walking, biking, e-biking, or public transit) more attractive. And safer.

The Tax Hound, publishing once a month, helps make sense of tax policy for those outside the tax world by connecting tax issues to everyday concerns. Have a question or an idea? Send Renu an email.