"They juice you to death. And you thank them for letting you have a card."
Posted on 10/06/2009 2:17:28 PM PDT by Blood of Tyrants
SO...you took FEDZILLA up on its offer of $4500. dollars to trade in your old "Clunker" (interesting choice of words)?
Well, let's see who got the best of that "deal"...
If you traded in a clunker worth $3500, you got $4500 off for an apparent "savings" of $1000. You could have gotten $3,500 if you had just traded the car in. So you really are $1,000 ahead (depending on your clunker's value) at this point. Not too bad....
However, you WILL 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 will 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, trading in a "clunker" that was costing you less to run than the payments that you will now be making.
Even if you save $1,000. dollars a year in gas due to better mileage, you're still gonna be in the red for five years....hello?
But wait, it gets even better: you also got ripped off by the dealer. For example, the month before the "cash for clunkers" program started, 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. because competition was stiff due to poor sales from the stalled economy.
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. Now let's do the math...
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
(that's minus...in the red)
And you paid: $3000 more than the car was selling for the month before ----------
Net Loss: -$3350
We could also add in the additional taxes (sales tax, state tax, dealer prep, etc.) on the extra $3000 that you paid for the car, along with the Five years of interest on the car loan; but let's just stop here while you kick yourself.
Suffice it to say that those costs will be much higher than any savings you get from "better mileage".
So who actually made out on the deal?
FEDZILLA collected taxes on the car along withtaxes 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.
Manufacturers got to dump lots of cars they could not give away the month before.
Lots of good or repairable used cars got taken off the market, crushed and sold as scrap metal to (ready for this?) CHINA! (Look it up...)
And the poor consumer got saddled with even more debt that they cannot afford.
FEDZILLA'S merry men (who promised that people making less than $250,000. would pay "not one red cent more in taxes") will make millions in new tax revenues after convincing Joe Consumer that he was getting $4500 in "free" money from the "government" In fact, Joe was giving away his $3500 car and paying an additional $3350 for the privilege. Chicago politics gone global...with an agenda.
If you find errors in this math, please let me know...being a simple guy, I'm always willing to learn new things; and if you took "advantage" of the Clunkers deal, I have some swamp land down in Florida that's for sale...
Buddy,
There IS no tax liability on that money, that was false reporting. It is clearly stated in the law if you bother to look.
Had some friends take advantage of this *deal*. They were deeply saddened.
Cash for Clunkers: Economic policy based on the broken window fallacy. Even the WSJ noticed.
Any government program is a clunker.
But any program devised by GM/Chrysler and auto dealers for used cars — c’mon!
No federal tax.
http://www.snopes.com/politics/taxes/clunkers.asp
There are potential state tax ramifications though.
The "clunker" law specifically excluded the $3500 or $4500 from the car buyer's "income". State income taxes, however, may be due.
In California those who bought new cars will also pay double car tags. Many purchased because they needed a new car badly, many forgot the doubling of DMV fees. OUCH!
Nephew’s inlaws gave he and his wife an old Suburban to trade in.
His wife asked what they were going to get, he said we have a Suburban.
She started figuring payments, what they could afford, and he said the Suburban is paid for.
They still have a Suburban.
"They juice you to death. And you thank them for letting you have a card."
From the official site:
Is the credit subject to being taxed as income to the consumers that participate in the program?
NO. The CARS Act expressly provides that the credit is not income for the consumer.
I don’t agree that people will be taxed on that $4500. They should have had to pay sales tax on full price of the car. But we got a $1500 rebate when we bought our first house in 1975, and we were not taxed on that. The economy was sour, and homes were not selling. I suppose it worked to some extent, but for us it was just a handout from Uncle Sam. We were already planning to buy that house anyway.
And if you live in CA, add another 9-10% for our state income tax.
I had a friend use the "deal" to buy a car he was looking at, anyway. (a POS Honda Insight, but whatever, to each their own....)
My guess is that he likely overpaid. I suggested that he check the price of the car he bought in a few weeks, and see how badly he was taken.
Will find out if he takes me up on the suggestion.
At least you'll be getting that better mileage while driving on freshly paved roads, you know, the roads that had nothing wrong with them. And you won't get bored stiff riding on those roads either, since they are all marked with interesting stimulus signs to read of who was responsible.
Not to mention that intelligent people reduce insurance coverage on cars that are apid off so the new trade up car now must have full coverage.
I was a new car salesman for a short while many moons ago. One guy bought a new sports car from me. I found out that his insurance was more than the car payment. IIRC, it was a $17,000 car in 1986.
Not true. The money is exempt from federal income taxes. This is spelled out by the bill that was passed. State income taxes may be due. The decision rest with the states.
I know two folks that used the clunkers program.
Both cars were worth a few hundred at best. Both got crappy mileage. One was a POS 92 Dodge Dakota and the other was a POS Blazer that couldn’t pass inspection in NJ.
Both are tickled pink to be rid of the junk.
I imagine most people with clunkers aren't in the 30% bracket.
Need to correct that - should be “No federal tax yet”. Wait until Jan 1, 2010 to be sure!
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