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Cash for Clunkers

I've been put on all sorts of private mailing lists over the past few months. You may be someone who's done this. Moments ago I got this email. Note: I've NOT taken the time to verify any of what's in this, but much of it is very true and that which I can't prove - the part about car dealers selling for full retail - is plausible because of the frantic buying - scarcity - that was going on.

But read this and think about what I said above. Where did all that money for that program come from? It didn't come from our Treasury because we don't have a National Savings Account. We've been overdrawn and in deficit spending for years. But read this, it's very simple but interesting grade-school math. Remember, I didn't author this, someone sent it to me:

Cash For Clunkers Explained

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 will tell 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 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 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 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.

Cash for Clunkers Update

Last issue I published the body of an email I received from someone about the Cash for Clunkers program. There was a major error in the material dealing with consumers having to pay tax on the $4,500 rebate. If you are one of these people, take a deep breath. No taxes are due to the Federal Government.

You may be one of the subscribers that pointed that out to me. Thanks for doing that. I tried to be very careful with that item, because I didn't vet the information. In fact, I put a clear warning right at the top stating that I didn't verify the facts or the math. That wasn't good enough for Ms. Nicki Hanson. Nicki very politely and professionally executed a debate that stretched out over an afternoon pointing out that it was not right to publish information that's not vetted. After several emails, I finally saw what Nicki was talking about and agreed with her. To that point, from now on, I'll do my best to vet the information or publish the actual source so that you can make up your own mind as to its validity. Nicki, thanks for jumping into the cage fight with me. You have one heck of a headlock. :->

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