Here is perhaps the best illustration of the folly of Cash for Clunkers that I have come across. It’s a video of a perfectly good 2001 Mazda light pickup with 75,000 miles being prepped for the scrapyard. In fact, you should check out the other videos posted by Promise383 (some NSFW language) and see for yourself how many good used vehicles that the C4C program has taken off the market. (h/t John Stossel)
John Stossel summarizes:
The politicians who defend Cash for Clunkers remind me of the silly people who said that the rebuilding that would come after the destruction of Hurricane Katrina would “stimulate” the economy. What they forget is that the money for rebuilding –and the cash-for-clunker money–is forcibly taken from people who would have used that money to create other things.
As of last week, only 7% of the promised dealer rebates had been paid out. Auto dealers must complete a 13 page rebate application in order to receive payment. Thousands of these applications have been rejected and sent back to dealers with no indication about what was wrong with them. But have no fear, in order to speed up the (predictably) bogged down and backlogged reimbursement process, 1200 additional government employees were redirected to help process the thousands and thousands of Cash For Clunkers rebate applications piling up at the DOT — including “non-essential” employees from the FAA’s air traffic control unit. One also has to wonder what the government will do with all the new employees recently hired by the DOT to run the Cash for Clunkers program, once the program comes to an end.
Because the government reimbursements have been so slow, car dealerships are experiencing major cash flow problems. GM has been forced to give bridge loans to its dealers so they will have enough money in the bank to operate. Think about this for a minute: GM, which was bailed out by the government, has to bail out auto dealers who have been left strapped for cash because the government can’t efficiently pay out cash rebates from a program that is (presumably) being paid for by deficit spending. I guess if you’re a government bureaucrat, that’s how you define “success.”
By now you might be wondering which car companies have sold the most new cars as a result of Cash for Clunkers. Here are the top ten new vehicles purchased through the program:
- Toyota Corolla
- Honda Civic
- Toyota Camry
- Ford Focus FWD
- Hyundai Elantra
- Nissan Versa
- Toyota Prius
- Honda Accord
- Honda Fit
- Ford Escape FWD
Notice who’s missing? Yep — Chrysler and GM. Could it be that a significant number of Americans now find Ford to be a more trustworthy automobile manufacturer, simply because they are not under government control? In fact, Edmonds.com is predicting that Ford’s August 2009 sales will increase by over 20% from last August’s sales figures, while GM and Chrysler’s August 2009 will shrink another 20% from their already dismal August 2008 levels. Unsurprisingly, the biggest market share of new Cash For Clunkers purchases went to Toyota, whose sales accounted for fully one-fifth of the new cars sold.
Okay, maybe I’m being too pessimistic. Let’s forget everything you’ve just read. You’re happy with your Cash For Clunkers purchase. You think you did the right thing, and you don’t think that your new car purchase will affect the amount of money that you spend on consumable items in the near future. Great — unfortunately, your Cash For Clunkers rebate might be taxed as income. Or will it? Even though the rebate cannot be counted as ordinary income for the purposes of Federal income tax, there is still a considerable amount of confusion about how the rebates will be taxed by states — will it be counted as ordinary income, or will it be factored into the computation of excise tax paid when state license tags are purchased?
The more we learn about Cash For Clunkers, the more it becomes apparent that this awful clunker of a government boondoggle should have never gotten off the ground.
More information about state taxes on Cash For Clunkers rebates is available at Tax Prof Blog.