Cash For Clunkers

I received this e-mail and thought it was pretty interesting. Note that the taxes it refers to are state taxes, and may fluctuate according to state.

Ignoring all the supposed savings in gas consumption resulting from the "cash for clunkers" program that was shown to be non-existent or minimal at best, let's look at some more numbers involving the transactions themselves.

If you traded in a clunker worth $3500, you got $4500 off the price of the new car for an apparent "savings" of $1000. However, you will have to pay state income tax on the $4500 come April 15. If you are in the 30% tax bracket, there goes $1350. So, rather than saving $1000, you actually pay an extra $350 to the state government. In addition, you have traded in a car that was most likely paid for, and now have 4 or 5years of payments plus interest.

But wait, it gets even better; you also got ripped off by the dealer. Every dealer, for example, was selling the Ford Focus for like $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 MSRP of $15,500. So you paid $3000 more
than you would have a month earlier.

So, let's do the final tally here. You traded in a car worth $3500. You got a discount of $4500.
Net, so far: +$1000.
But now you pay $1350 in taxes.
Net now: -$350
And you paid $3000 more than the car was selling for the previous month.
Net now: -$3350
Plus sales taxes, higher insurance fees, interest over 5 yrs.
Net now: Somewhere around -$10,000.

Who actually made out on the deal? The state and federal governments collected taxes on the car plus the states collected taxes on the $4500 "giveaway." The car dealers made an extra $3000 on every car they sold and the manufacturers got to dump lots of cars they couldn't give away the month before.

Obama and his band of merry men convinced poor Joe consumer that he was getting $4500in free money from the government when in fact he was giving away his $3500 car and
paying an extra $10,000 for the privilege.

Now there are most certainly problems with the math here. For instance, I assume not all dealerships removed any previous discounts on their cars. Not all cars were worth $3500. Not all state governments charge the same tax rates. Interest and monthly payments differ from person to person, etc. But even given all of that, there are certainly some interesting points presented.

Do you see any other problems in the logic? Any points to add to the argument?

Thanks John!


Bill in Vegas said...

Not to mention that the "clunkers" traded had to be destroyed - what was the sense in that? The "Clunkers" were still functional vehicles, the kind of vehicles first time car buyers, second car buyers, young buyers, and poorer buyers could afford, but now are removed from the "stream of commerce"! Yeah what a GREAT DEAL compliments of Obama and his incompetent cronies!

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