Congress Discussing Tax Incentives for Auto Industry

Joshua Duval

With two of the three largest domestic automakers on federal loan life-blood and the other suffering record losses, Washington is giving serious consideration to devising tax incentives that will spur new car sales. Two ideas have come out as the front-runners for implementation: a deduction for new car loans, and a cash-for-clunkers program.

The first plan, introduced by Senator Barbara Mikulski (D-MD) and Representative Bill Pascrell (D-NJ), would institute an "above the line" deduction (meaning even tax filers who don't itemize deductions would still benefit) for auto loans of up to $49,500. Car buyers borrowing more than that amount would still be able to deduct interest and sales tax on the first $49,000. Individuals making more than $150,000 and families making more than $250,000 would not be eligible for the benefits.

The second idea is officially known as "fleet modernization". Introduced by Senator Dianna Feinstein (D-CA), the plan would give owners of older cars vouchers worth thousands of dollars toward the purchase of newer, more fuel efficient vehicles. Dealers would have to guarantee that the trade-in would be scrapped, not resold, in order for the customer to get the cash. The car's VIN would then be tracked to make sure it was never resold.

So far, the second plan has gained traction because of its appeal to both the auto industry and environmentalists. Fleet modernization ensures two things: new car buyers purchase more fuel efficient cars, and used cars don't flood the market, reducing trade-in values for new car buyers. According to a spokesman from Feinstein's office, her plan could save up to 80,000 barrels of oil a day.

Source: CNN Money

This is a very interesting issue. Both sides seem to have environmental and economic pros and cons. I would bet that Congress will spend a fair amount of time debating this one.It is always fascinating to see the various requests to Congress. This Congressional session will perhaps be more interesting because of everything included in the stimulus bill and everything else that Congress will have to deal with. I'm curious to see how this particular Congress will handle all of the competing priorities.The Democrats are touting their first 100 days as the time when they are going to get a tremendous amount accomplished. I hope they do accomplish something significant in the first 100 days. It seemed like the last Congress didn't accomplish much in all of 2008. I saw that the Friends of the U.S. Chamber of Commerce is asking people to give their opinion on the most important thing for Congress to do in their first 100 days. Then they're going to work to get Congress to accomplish what the public actually wants them to do. Whether you think they should debate tax incentives for the auto industry or something else, make sure to add your opinion so Congress can know what our priorities are -
That's a good point. But I can't possibly imagine that scrapping thousands of cars is particularly environmentally-friendly either. There are two things in particular that bug me about this whole thing. First of all, I hate the idea of scrapping all those cars (probably a very small percentage of which would be qualified as "gas guzzlers") that would otherwise still last for a long time. That strikes me as extremely wasteful. Second, even with these vouchers, the vast majority of the people probably wouldn't even use the money to buy a new car, just a "less-used" one that would end up having to be scrapped in a couple more years.
From an environmental perspective, that doesn't sound like a good idea. How many more emissions would we be adding if we shipped our gas guzzlers to smaller countries for cheap?
Sure, the auto industry needs help, but I think Uncle Sam is going too far this time. Say "desperate times call for desperate measures" all you want, but the Federal Gov't has no business in the private property of citizens. This is the best the new government can come up with?? Seriously? Let's give less-than-qualified persons gianormous loans for vehicles beyond their means. After all, look how the same strategy worked for the housing market. Otherwise, we could always flood every salvage yard in the nation with used cars that probably still have a lot of life left. If anything, why not export these vehicles to smaller countries where new vehicles are either too expensive or unavailable? I visited Costa Rica a year and a half ago, and it seemed to work out pretty well for them.

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