Why this is a bad idea:
1) I know the auto industry is hurting, but why cars only? Why not a deduction for “durable goods” or something if you want to stimulate consumer spending?
2) Deductible interest, are you shitting me? Do we really want to incentivize more debt?? Isn’t this how we got into trouble in the first place? If we’re going to enact this ridiculous policy, just make it a capped $1,500 credit on item’s value.
3) Do the senators not know that this will end up being incredibly regressive? As with any deduction, it will be worth much more to people in higher income brackets. Some huge percentage of taxpayers doesn’t even itemize deductions. Furthermore, because the tax and loan amounts will be proportional to the sale price, the guy buying an Escalade will get a bigger write-off than the guy buying an Accord.
4) What about people who live in cities but don’t use cars? God knows, every time there is an urban-focused project, the rural parts of the country scream bloddy murder. Amazingly, the Senate rejected increases to mass transit on the same day they voted for this boondoggle.
5) Given our professed need to “wean ourselves off foreign oil,” shouldn’t we at least steer people to efficient vehicles? Indeed, setting $50k as the top amount seems designed to ensure that expensive SUVs get a bigger deduction than standard cars.
I don’t like this porklet either, but I’m not convinced it will be unpopular. (Sure, some people will say, shame on this wasteful thing! but so?)
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p>And although there are some things added by the Senate that might inhibit the stimulus, I don’t see how this is one of them. Say rather it adds to the cost that will be paid off in terms of future inflation or economic weakness. (Needlessly so.)
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p>Yes. We need people (and government) to spend money.
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p>Yes, which is why there’s an income limit on this deduction. That limit might be higher than it needs to be, but then again, the whole point is to encourage consumer spending regardless of income.
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p>Is this provision a silver bullet to save the economy? Obviously not. But it’s part of a broader package to boost spending in the economy. I don’t see the problem and why this provision needs to be singled out.
On regressivity, compare the home credit (which has its own issues…). There you would get a flat tax credit of $15,000 that people get for buying a house, up to 10% of home value, phasing out for upper-income taxpayers. Everyone, within broad parameters, gets the same deal. Vs. with the car credit, where the size of your benefit will depend on 1) whether your state has a sales tax and, if so, what percent; 2) what your marginal tax rate is; 3) whether you itemize deductions; 4) how expensive the car you purchase will be; and 5) what percentage you finance vs. pay in cash. When you add up those variables, the benefit will end up being pretty regressive. Why not just give a $1,500 credit (or 10% of value)?
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p>On financing, I understand that the goal of stimulus is to get people to spend money. I just don’t understand 1) why we are limiting it to cars and 2) why we are tying the size of the tax benefit to the amount of financing. The latter strikes me as particularly perverse. If someone can walk into a dealership and, with a trade-in, pay cash for a new car, why would we not want to promote that?
but car loans is not what got this country into its current economic trouble. LOL.
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p>You can make that same point about every single dime that’s spent on any program. Why isn’t it spent on something else?
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p>According to the admin, this is a quick stim bill, not the be all end all on public works spending. Hopefully, within the next 2 years, we can get a major bill that will be New Dealesque in its forward thinking and infrastructure work. Obviously, we need that as a country. But we can’t get everything we want in one bill, especially if that bill is geared toward spending that can be done quickly.
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p>This is your first very strong comment. It would be smart to offer more incentives to get efficient vehicles and to add disincentives to any gas guzzlers. Doing so could make the bill something that makes America use less oil, not more, all the while helping the auto industry in a time that it could really use the help – without just handing out bailouts.
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p>With a little tinkering, this could be a really good amendment. Even without it, you haven’t made your point anywhere near well enough to suggest that this is as disastriously bad as you say it is: it’s certainly not “stimulus gone wild.” You could say the $300 billion in tax cuts to appease Republicans, failing to appease a single one so far, could be the Stimulus Gone Wild.
it would be “not a terrible amendment.”
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p>People aren’t buying new cars because they really can’t afford it. Giving them money (maybe) a year after they make the purchase doesn’t help them afford the car now.
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p>People aren’t buying new cars because they’re being cautious about the risk of losing their jobs, etc. Taking a car loan isn’t like buying a TV, where you can see if you have the money now. The car loan requires you to keep “having the money” for the next 4 or 5 or 6 years… and if a person is cautious about that scenario, do we really want to push their decision the other way?
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p>This tax cut is both progressive and regressive. It’s progressive because there’s an upper limit. It’s regressive because any tax deductible is regressive — the poorest don’t file Schedule A. In fact, the vast majority of Schedule A filers do it because they have a home mortgage; the vast majority of those who are left do it on a year when they have obscene medical bills.
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p>This is a bad bill. It encourages the wrong kind of spending by the wrong people. From an environmental perspective, the fact that car sales (for all companies, not just US companies) are way down is good — it gives the Obama administration (and, by extension, California via the EPA lawsuits) a chance to keep ratcheting up CAFE and air pollution standards before people buy cars at the 2007 level. If we hold off now, our total fleet will be greener in just a few years, something that generally couldn’t have been said 1980-2007.
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p>Of course, you’re partly right, but since the gov’t gave GM a loan, GM has been doing better – because it, in turn, has been able to offer loans to people. Almost no one can afford to buy a car up front, but many people – even in this economy – can afford to do so over 3-5 years.
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p>Did I say it was a good one? No. I said it wasn’t essentially so bad that it made the entire stimulus not worth it, which was basically what the diary implied. Moreover, I didn’t even say I liked the amendment, only that I thought – with a bit of tinkering – it had some potential. There are people who could use new cars who aren’t buying for many reasons, not all of them having to do with the fact that they are not financial able or secure enough to do so.
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p>Again, I reject that notion. If John Smith replaces his Ford Explorer with a Honda Accord, that’s a really good thing for the environment. If Jane Doe replaces her hunk of junk that’s not meeting emission standards, burns oil and stalls at stop signs with a Ford Focus, score one for Planet Earth. Obviously, any incentives to buy cars should be to buy good cars – ones that get good mileage – but that’s why I said the measure had potential.
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p>Not everyone can “hold off” and not everyone should (people with Suburbans, for example). And even if everyone could, “holding off” for another year or two may mean the end of the American Auto industry, a price I’m not willing to pay.
I almost didn’t include the piece on cities, and I appreciate that its not the strongest argument. That being said, I do think it’s ironic that they added this amendment on the same day they rejected additional mass transit funding.
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p>On the car loans issue, auto, credit card and student loan debt was also securitized. If the economy keeps tanking, you might see that this will be a problem. But my real point was that we spent much of the 2000s living on debt. The savings rate dropped below zero — i.e., we collectively were taking out in debt than we were saving. Now, because of the paradox of thrift, we actually don’t want to reverse this right away. We need people to spend to keep the economy up. Fine. But let’s encourage people to spend money they actually have, not incentivize new debt. As noted above, a flat credit for all car purchases, cash, financed or mixed, would make much more sense.