Tax Breaks for New Cars, But Not Doctor Bills? 22 comments
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Here is a look at some of the recently announced additions to the ever growing stimulus package:
(From the Associated Press):"WASHINGTON – The cost of President Barack Obama's economic recovery plan now exceeds $900 billion after the Senate added money for medical research and tax breaks for car purchases.
It could go higher Wednesday if a tax break for homebuyers is made more generous, even as centrists in both parties promise to clear away spending items that won't jump-start the economy immediately.
In an interview on CNN, Obama signaled a willingness to drop items that "may not really stimulate the economy right now." He also signaled he'll try to remove "buy American" provisions in the legislation to avoid a possible trade war.
In a victory for auto manufacturers and dealers, Sen. Barbara Mikulski, D-Md., won a 71-26 vote to allow most car buyers to claim an income tax deduction for sales taxes paid on new autos and interest payments on car loans. The break would cost $11 billion over the coming decade but could mean savings of $1,500 on a $25,000 car.
"Just as we need to get the housing market going, we need to get auto sales going," said Sen. Debbie Stabenow, D-Mich.
Wednesday's session could produce even more generous savings for homebuyers.
Sen. Johnny Isakson, R-Ga., is pressing for a tax credit of up to $15,000 for everyone who buys a home this year, at a cost of $18.5 billion. The pending measure would award a $7,500 tax credit only to first-time homebuyers."
So the first thing I thought of when I read this is the fact that you can only deduct medical expenses that exceed 7.5% of your AGI. Furthermore you have to itemize these deductions, so you only see a benefit if your expenses exceed both 7.5% of your AGI and your standard deduction amount ($10,900 married couples, $5,450 for single people in 2008). For a household earning $50k/yr this effectively means that your medical expenses have to exceed $14,650.00 (7.5% of $50k = $3,750), for you to see any benefit from deducting them.
Considering that $14,650.00 is 29% of $50k, it stands to reason that the married couple in the example above would be near destitute prior to being able to deduct any of their medical costs.
Finally self-employed people and/or people who have private health insurance plans cannot deduct the cost of their health insurance, thereby adding a veritable extra tax on the self-employed and other individuals who don’t have insurance through their jobs.
Doesn't correcting the situation around the deductibility of health insurance and medical expenses make more sense than giving people tax breaks for buying cars? Especially when medical expenses are one of the leading causes of people having to declare bankruptcy? Correcting the situation around deducting medical expenses would do a lot more to put cash in people's pockets, than would tax incentives that encourage people to buy things.
Perhaps the thing that bothers me the most about this is the fact that many analysts, pundits, politicians, industry leaders, etc, are unwilling to accept the fact that after years of overspending the consumer is finally doing the smart thing and pulling back. Debt laden consumers who are dealing with higher payments on their mortgages, miniscule savings, rapidly rising healthcare costs, on top of potential job loss (if they haven't been laid off already), don't necessarily need to run out and buy new cars.
While it's easy to say that Joe & Jane consumer should purchase new cars for the sake of the economy even if their current cars are running just fine, who is going to pay Joe & Jane's bills if they lose their jobs, are hit with an economic shock, have sudden medical expenses, etc?
Perhaps instead of encouraging people to continue (or revisit) their bad habits our government should be thinking about how to incentivize savings, and re-vision the economy for a nation of savers as opposed to a nation of irresponsible spenders. Putting incentives in place to encourage people to spend like the days of old may provide short-term dividends, but it will only lead to a long-term disaster as overspending is not a sustainable situation.
Finally the numbers at play here are ridiculous: the proposed tax break would cover single individuals who earn up to $125k and married households earning up to $250k, for cars that cost up to $49,500.00. In my view it's nonsensical to think that households that earn more than 2-5% of the population need the taxpayer to subsidize their luxury car purchases. If the government is going to go through with this idea they should cap the car's value at $25k, and make it available only to people earning the median income for their respective metro area.
Mind you I say this even though it goes against my own self-interest, however I just don't think a middle income family in Peoria should be subsidizing the cost of my next BMW.
Call me crazy.
Sources:
The Associated Press: "Obama economic plan now tops $900 billion" -- Andrew Taylor, February 4, 2009.
Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.
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The big difference between those two industries is that folks NEED medical care. We all don't necessarily NEED a new vehicle.
No one should blame the Democrat/Socialists for the disaster that is coming from the Pork Star. Haven't we all known for decades that the Democrats are America's version of the Socialist Party?
It was and has always been the Republicans game to lose. And lose it they did by always getting in bed with the Wall Street Whores on the one end and spending like DemoSocialists when it suited their needs; particularly when their Wall Street Whores began screaming for "Mo' Money"!!!" in the form of TARP.
This is why socialized medicine is a metaphysical certainty. The Republicans have forever lost the fight for privatization. They can only delay the inevitable.
Third way socialism is our destiny in America. The American people have been slowly but surely voting for it since the Great Depression and Republicans have been slowly but surely losing the fight against it.
Game over.
RT
Privacy-Center.net
On Feb 05 09:20 AM Sentinel wrote:
> Crank Monkey has hit the nail squarely on the head.
>
> No one should blame the Democrat/Socialists for the disaster that
> is coming from the Pork Star. Haven't we all known for decades that
> the Democrats are America's version of the Socialist Party?
>
> It was and has always been the Republicans game to lose. And lose
> it they did by always getting in bed with the Wall Street Whores
> on the one end and spending like DemoSocialists when it suited their
> needs; particularly when their Wall Street Whores began screaming
> for "Mo' Money"!!!" in the form of TARP.
>
> This is why socialized medicine is a metaphysical certainty. The
> Republicans have forever lost the fight for privatization. They
> can only delay the inevitable.
>
> Third way socialism is our destiny in America. The American people
> have been slowly but surely voting for it since the Great Depression
> and Republicans have been slowly but surely losing the fight against
> it.
>
> Game over.
>
On Feb 05 08:12 AM Crank Monkey wrote:
> The porkulus package is Democrats looting the treasury. This started
> under the GOP and continues under the Democrats. Americans need a
> new party. The two we have now are very corrupt.
There should also be equal treatment for medical insurance payments. You may also recall that this was one of the medical reform ideas from McCain camp during elections that got re-spun by Obama team as "taxes on health insurance for the first time in history." Would Democrats be willing to do an about face now by giving everyone an equal tax break on health insurance premiums?
On Feb 05 08:53 AM Whippet wrote:
> I find it interesting that the two industries the government now
> has significant equity in are the ones they're subsidizing through
> tax cuts (cars and finance). What about those of us who purchased
> cars and homes responsibly prior to this depression? Who bought their
> cars cash instead of financing them? We're not entitled to tax rebates
> on money we've spent (or didn't spend in the case of interest payments)?
> The government will continue to punish those of us who have made
> responsible decisions (i.e. pay down debt, save) and reward those
> who re-inflate the bubble. Insane. And I agree with Crank Monkey-
> the Republicans have lost my faith as a party to stand up for the
> fiscally responsible.
Cars are the single largest purchase after a home.
People take out loans to buy cars. This increases lending and the money supply. It's more money for bankers.
When I call for a doctor appointment, the first thing they ask is my name. The second thing is what health insurance do I have. Then then ask for strong identification information, such as DOB, SSN#, etc. The last thing they ask, if they even get around to it, is what problem I am having.
1) attempting to buy the labor vote for the democratic party by accommodating the UAW's grandiose wage expectations;
2) anticipating that lithium battery technology will be the standard for vehicles (since it will cost $45,000 for a Chevy Volt that is equipped like a stripped down Chevy Cobalt).
Examples:
1) The "self-employed health insurance" deduction doesn't help if you work at, say, an auto repair shop where the owners won't pay your insurance... unless you become "self-employed" and make that shop your "client". Then, in most states, your "self-employed" self forfeits unemployment benefits should the shop lay you off.
2) The code that "if you have self-employment income, you can take a deduction for health insurance expenses" also doesn't help if you haven't worked for awhile (laid off, sabbatical, etc.) and don't have any self-employed income in that 12 month tax year.
3) The limits of 7.5% of AGI ensures that for most of us, if your employer moves to a lower-cost, higher-deductible plan (say, from $10 per office visit to $30 per visit) you are out-of-pocket not only that $20 difference, but since you have paid income and employment taxes to earn that $20 extra, even more.