Subject: Clunker Perspective
>
> THIS WAS A GOOD
> DEAL ???
> A/ If you traded in a
> clunker worth $3500, you get $4500 off for an apparent
> "savings" of $1000.
>
>
>
> B/ However, you have
> to pay taxes on the $4500 come April 15th
> (something that no auto dealer will tell you). If you
> are in the 30% tax bracket, you will pay $1350 on that
> $4500.
>
>
>
>
> C/ So, rather than
> save $1000, you actually pay an extra $350 to the
> feds. In addition, you traded in a car that was most
> likely paid for. Now you have 4 or 5 years of payments
> on a car that you did not need, that was costing you less to
> run than the payments that you will now be
> making.
>
>
>
> D/ But wait, it gets
> even better: you also got ripped off by the
> dealer.
>
>
> For example, every
> dealer in LA was selling the Ford Focus with all the
> goodies including A/C, auto transmission, power windows, etc
> for $12,500 the month before the "cash for
> clunkers" program started.
>
>
>
> E/ When "cash for
> clunkers" came along, they stopped discounting them
> and instead sold them at the list price of
> $15,500. So, you paid $3000 more than you would have
> the month before. (Honda, Toyota , and Kia played the
> same list price game that Ford and Chevy
> did).
>
>
>
> F/ We could also add in the
> additional taxes (sales tax, state tax, etc.) on the extra
> $3000 that you paid for the car, along with the 5 years of
> interest on the car loan but lets just stop here. Let's
> assume a 15,000 car - 4500 allowance = 10500 x 8% sales tax
> = $840
>
> G/ Additional Interest you will
> pay on a 10500 loan at 5% over 5 years = approx
> $1400
>
> So lets do the final
> tally here:
>
>
> You traded in a car
> worth: $3500
>
> You got a discount
> of:
> $4500
>
>
> ---------
>
> A/ Net so
> far
> +$1000
>
> B/ But you have to
> pay:
> $1350 in taxes on the $4500
>
>
>
> --------
>
> Net so
> far:
> -$ 350
>
>
> E/ And you
> paid:
> $3000 more than the car was selling for the month
> before
>
>
> ----------
>
> Net so
> far -$3350
>
> F/ Additional Sales
> Tax -
> $ 840
>
> Net so
> far..................... -
> -$ 4190
>
> G/ Interest on
> loan......
>
> - 1400
>
>
> NET SAVINGS
> = minus- $ 5590
>
>
>
> Translation: You
> got screwed!
>
>
> You really lost approx
> $5600 of your
> hard eared dollars on a
> program that
> they said was for your
> benefit.
> Please thank them at the
> next elections.
>
>
> Politicians working for
> America!
>
>
>
> So who actually made out
> on the deal? The feds collected taxes on the car along
> with taxes on the $4500 they "gave" you. The
> car dealers made an extra $3000 or more on every car they
> sold along with the kickbacks from the manufacturers and the
> loan companies. The manufacturers got to dump lots of
> cars they could not give away the month
> before.
>
>
> The government convinced Joe consumer that he was
> getting $4500 in "free" money from the
> "government" when in fact Joe was giving away his
> $3500 car and paying an additional $5590 for the
> privilege.
Well no one forced anyone to participate in the clunker program did they? If people want to enter into transactions without doing proper due diligence then why should you care?
Let's get real... how many "clunkers" are worth $3500 at trade? Not many.
And if someone has half a brain, they do their due dilligence before buying a new car, so you should know what the average going rate is for the car you're looking for and can negotiate a good deal.
There's an old saying that "figures lie and liars figure".
Your point is valid ONLY under your narrowly defined and somewhat suspect parameters.
That's some pretty fuzzy math you are using there.
All other variables aside, the net fuel savings from the cash for clunkers program will represent less than a 1% reduction in our overall fuel demand. Some experts have said that in reality, our actual consumption may actually increase since so many folks can now take that 4 hour drive to visit Aunt Edna in their spiffy new fuel efficient car versus their old unreliable gas guzzler.
At any rate, the reduction in fuel consumption will be miniscule, yet we spent $3 billion to save ourselves a couple thousand barrels of oil a day, out of a total usage over several million barrels a day. Not exactly what I would call an efficient use of our resources.
At the consumer level though, there is no question that the cash for clunkers program was extremely beneficial for some. My Dad traded in his ancient Toyota pick up for a spiffy new Kia Spectra, and when it was all said and done, paid only $5,000 for a brand new car that gets almost three times the fuel economy of his old truck. Not too shabby. I'm pretty sure he can handle the taxes, and the car payment.
PS. There was a big news story at the height of the C4C program. GM re-hired nearly 2,500 workers who had been laid off to meet production demands. Guess what? They are laid off again. We might as well have given those workers an entire year's salary instead. Then we could have just saved that other $2.8 billion.
Motor Vehicle Fuel Consumption and Travel in the U.S., 1960–2006
A major flaw in your calculations is the calculation of federal income taxes.
The cash for clunkers rebate is not taxable income for federal income tax purposes.
The law that congress passed to enable the "cash for clunkers" program specifically EXEMPTS the $3500/$4500 payments from federal income tax. This means that the rebate will not even be shown on your 1040 form.
I am including a link to the government web site dealing with the program.
However, depending on your state of residence, the rebate may or may not be taxable for your state income tax puposes.
During the time the program was running, the L.A. Times had an article intending to show how well it worked. It gave the example of a woman who had bought a car for her kid for $2,500 a few years ago, and the kid was now on his own, so he bought his own car. They had not been able to sell it, and were going to give it to a charity for $500.
Keep in mind, charities are generous in their evaluation, so the car was probably worth less. (Obviously it wasn't worth more, or they could have sold it for more.)
She traded it in on the clunkers program, getting $4,500.
In other words, the feds gave her 9 times what the car was worth, not counting administrative expenses.
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