Well, H.R. 2751: Consumer Assitance to Recycle and Save Act -- better known as the "Cash for Clunkers" bill -- passed the House of Representatives on a 298-119 vote and is awaiting action by the U.S. Senate. The bill gives buyers a $3500-$4500 tax credit for trading in their used car for a new car at a dealership. The dealers then have to ensure that the used car is either crushed or shredded; they cannot even sell it overseas!
Edmunds has reported that the average price of a new car is $27,800. BankRate.com reports that an average car buyer puts down 5%; this would mean that an average new car buyer would take on about $26,410 in new debt. The tax credit (let's say an average of $4,000) would take this down to $22,410.
Just as with the $8,000 first-time homeowner tax credit (and a "first-time" homeowner is anyone who hasn't owned a home in 3 years), the federal government is tempting Americans with more debt. Yet again, Washington proves that it does not get it: debt is the problem, savings the solution.
Instead of creating an economic incentive for Americans to take on new debt, Congress should pass incentives for Americans to pay off their debt. For example, how about a $3,000 above-the-line tax deduction for paying off an auto loan? How about a $1,000 tax credit for paying off one's mortgage? Of course, these incentives would do nothing to further the interests of the real estate industry or the automobile industry (which is and/or will be run by the government and its UAW supporters).
I sincerely hope that not too many Americans fall for this foolishiness. Why would a person trade in their unleveraged, perfectly-working 2001 Saturn SL1, for example, so that he or she can take on $20,000 in new debt?
Disclosure: No positions
