Monday, October 5, 2009

The "Secret Cash For Clunkers Math" The Government Doesn't Want You To Know About

(I received this in an e-mail)

What a deal!

If you traded in a clunker worth \$3500, you get \$4500 off for an apparent "savings" of \$1000.

However, you have to pay taxes on the \$4500 come April 15th (something that no auto dealer would have told you).  If you are in the 30% tax bracket, you will pay \$1350 on that \$4500.

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.

But wait, it gets even better: you also got ripped off by the dealer.

For example, every dealer here 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.

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).

So lets do the final tally here:

You traded in a car worth:   \$3500
You got a discount of:          \$4500
---------
Net so far                           +\$1000
But you have to pay:           \$1350 in taxes on the \$4500
--------
Net so far:                          -\$350
And you paid:                     \$3000 more than the car was selling for the month before
----------
Net                                      -\$3350

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.

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.  And the poor stupid consumer got saddled with even more debt that they cannot afford.

Obama and his band of merry men 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 \$3350 for the privilege.

Anonymous said...

Some factual correction: There were only state taxes on the rebate total, and those vary from state to state, with some states not taxing at all.

There were never any federal taxes on the rebate total.

In addition, buyers using the Cash for Clunkers program were eligible for deductions on their federal tax return for any state or local taxes paid on a new vehicle purchased this year from Feb. 17 through Dec. 31.

Do you buy into every anti-government, anti-Obama email that you get? I bet you do.

Anonymous said...

lol. Who thought cash for clunkers was about saving people money?

Only cars with an average MPG rating of 18 or less were eligible. Cash for clunkers was about economic stimulus and fuel economy.

Anonymous said...

So, in other words, it injected money into the American auto industry the only way possible - by tricking people into buying an inferior product?