Ready for an Obamanomics lesson, kids? Let’s say you traded in your clunker worth $3,500. You then got $4,500 off as a cash incentive for a net plus of $1,000 in savings...so far, so good.
Oh, in case you did not know, you have to pay taxes on that $4,500 by April 15th (the dealer did not mention that???). Let’s say you have a 30% combined federal and state marginal rate, guess what? You’ll pay $1,350 on that $4,500 cash-for-clunker payment...so far, not such a great deal because you are now underwater 350 bucks, but it gets worse.
If you traded in a paid-for car and then borrowed to buy the new one, congratulations: you now have 4 or 5 years of payments on a new car with no interest deduction, either! That working car you had involved less expense to run than the payments that you will now be making now, even if the thing had to be repaired every month. It gets better, though: you also got ripped off by the dealer. Why?
Before this program, dealers were selling the Ford Focus, for example, well-equipped (A/C, auto transmission, power windows, etc.) for $12,500 the month before the "cash-for-clunkers" program began; afterward, the dealers stopped discounting them and instead, sold them at the list price of $15,500, $3,000 more than the month before. Yeah, Honda, Toyota, and Kia, because they have a bigger small car line up, all were bigger beneficiaries than our own car companies, and they played the same list price game as the D3 (The Detroit Three, since "Big Three" does not seem to fit these days)..
Do the math: You traded in a car worth: $3,500
You got a discount of: $4,500
Net so far +$1,000
But you have to pay $1,350
in taxes on the $4,500
Net so far: -$350
BUT you paid $3,000 more than the car was selling for the month before
Net -$3,350
Add in the more taxes (ad valorem tax, state sales tax, registration, etc.) on the net purchase price that you paid for the car, along with years of interest on the car loan, but you get the idea. So who actually made out on the deal?
The feds collected taxes on the car along with taxes on the $4,500 they "gave" you; the state collected sales and/or ad valorem taxes plus registration fees. The car dealers made an extra $3,000 or more on every car they sold along with the kickbacks/rebates/incentives from the manufacturers and finance companies. The manufacturers got to dump lots of cars they could not give even away the month before. The poor, stupid consumer got saddled with even more debt they cannot afford.
Obama and his band of merry men convinced Joe and Susie Consumer they were getting $4,500 in "free" money from the "government" when in fact, Joe was giving away his $3,500 working car and paying a heap of taxes, fees, and interest for the privilege.
Think this was stupid for those who were crazy enough to swallow this wonderful scheme? Just remember when you hear about the next "government program"...it will be brought to you by the same people who came up with Cash-for-Clunkers!
