I was just *forwarded* the following concerning the messianic Car Allowance Rebate System:
It's way worse than that. Ignore all the gas crap and just look at how the stupid car buyer got taken to the cleaners:
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 here 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
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 let's 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.
Hmmmm. So between the *tax* and the auto-dealers fading the price....THERE WAS NO DEAL!
Note that the same goes for every other government subsidy - e.g. the mortgage interest tax deduction, whatever Morons think they save through it....was baked into a higher, er distorted, purchase price upfront!
UPDATE - Apparently, the rebate is not taxable on the Federal level - only the states can tax it. Nonetheless, the essential point still holds. By fading the list prices, much of the *savings* evaporates, your car insurance payments go up, etc.