The Senate on Tuesday passed an amendment to President Obama's stimulus plan that would give an income-tax deduction to car buyers for both sales taxes and interest payments on auto loans. It's one of the few measures aimed at spurring car sales instead of merely handing loans to ailing carmakers.
Senator Barbara Mikulski (D-MD), who sponsored the amendment, said the measure would save a family about $1,500 on the purchase of a new $25,000 Dodge minivan. Sound helpful?
Well, on the surface yes. But look into the details of Senator Mikulski's figure and you'll see it's largely smoke and mirrors.
For one, Mikulski's example uses a family that earns $150,000 a year, about three times the national average household income in the U.S.
Then it uses a 48-month loan at 8% interest to show savings of $1,133. Given the fact that Dodge is currently offering 48-month loans at 0% interest on its Caravan, this entire amount is largely spurious.
Take that out of the equation and the savings amounts to $420 from the sales tax deduction.
Think anybody is going to buy a car because it's $420 cheaper that it was before?
billt9 says:
09:59 AM, 02/ 4/09
I don't think Ms. Mikulski does her own math. Somebody's report to her probably had that $1500 number on it. I can't imagine manager type people like senators churning out their own numbers to confirm the reports handed to them.
creeper says:
10:48 AM, 02/ 4/09
looks like a superficial plan to help the fools in detroit start to offer financing that will generate some revenue. 0% interest has been the opiate of detroit since 9/11 and has come back to bite them right in the finance arm.
flicmod says:
01:04 PM, 02/ 4/09
And Russians were guaranteed one of these too: http://free.x3.hu/raczdavid/Kepek/gazM21volga.jpe
C'mon. If we can't see that this is a bad idea, I think everyone needs to get some real economic lessons. This does nothing for anyone. Subsidizing auto loans will only create false demand for cars and sustain further excessive spending by average people.
What the American people really need is to save their money. Prices will drop drastically, inflation will stall, and companies will become profitable then. It's not easy, but it's the only logical path.
brn says:
01:11 PM, 02/ 4/09
creeper writes: "looks like a superficial plan to help the fools in detroit"
Reading the article, I don't see where it specifies domestic auto makers. It looks to me like they want to take US tax dollars and stimulate foreign auto makers. I've a real problem with that.
minibro77 says:
01:13 PM, 02/ 4/09
"looks like a superficial plan to help the fools in detroit start to offer financing that will generate some revenue. 0% interest has been the opiate of detroit since 9/11 and has come back to bite them right in the finance arm."
I could not agree more creeper. Well said. The government wants to spur business but hasn't come up with any kind of viable plan to do so. Everything they've come up with has been a band aid solution. The banks need to start lending again. The government gave them money so that they could just sit on it. That was their first mistake.
detroitlover says:
01:21 PM, 02/ 4/09
Well said brn. Where does it say domestic? It just says automakers, which applies to the Germans, Koreans, and Japanese too.
firstwagon says:
01:30 PM, 02/ 4/09
"What the American people really need is to save their money. Prices will drop drastically, inflation will stall, and companies will become profitable then"
How will people saving their money make companies profitable? The opposite is true.
We already have falling prices and in many place, deflation instead of inflation. That's what a recession is.
As for the plan not being enough to make a difference, are you expecting the Government to give you a car?
I keep hearing people whining about the government not doing enough to end the recession. BS. They've used every trick they have and it hasn't worked because they are not the cause of the recession.
You want an end to the downturn?.... get out there and spend money. The vast majority of people have not lost their jobs. Only consumers can turn this around.
Stop preaching doom and gloom.
roar02ram says:
02:38 PM, 02/ 4/09
Not a good execution.
Besides the financing particulars mentioned here, this plan (if it works well) would also put a huge drag on the used car market (and trade-in values). Plus her paperwork makes it seem like she specifically wanted to stimulate the Domestic auto industry, but the offer is good on anybody's car.
And why can't we get this kind of a break on existing loans? Most folks are underwater on their car loans anyway.
cwc1 says:
06:37 PM, 02/ 4/09
Most things that come from Congress lately are smoke and mirrors, particularly with this batch.
The government *is* largely the cause of the recession. They've done too much so what we need is less from them, not more. This hasn't worked because people and businesses don't have any confidence that these supposed wizards even know what they're doing. All this spending of phony money will deflate the currency.
Let the markets recover on their own. Any more intervention will just make it worse, unless they actually start letting people keep more of their own money for a change.
tshoe says:
08:28 AM, 02/ 5/09
I have always bought pre-owned cars to save money on depreciation so I don't think this will affect myself. However my friend is thinking about a new Camaro. Here in Washington state we have a sales tax of 8% (even higher in some counties). On say at $25000 loan plus tax and 4% interest for 5 years, throw in liscense and title fees and you have a $500 payment times 60 is $30000 = you would "save" $5000. This would help out car sales in the US I think.
flicmod says:
07:48 AM, 02/ 6/09
firstwagon,
You need to stop drinking the Keynesian Kool-Aid and start reading some Austrian Economic truth. Spending does NOT help solve economic crises. It only raises prices and makes the average person poorer. Businesses have to fail when they're doing something bad. It's how the market weeds out the successful from the unsuccessful. The government intervention hasn't done anything to help the economy because it's impossible for them to do so. This recession was, in fact, caused by the government. The Federal Reserve has artificially kept interest rates low for decades, allowing people to spend more money than they have and to go in debt. Our own treasury gives Americans incentives to spend, because they do the same thing.
Spending is not the answer. Inflation is bad. Deflation is not as bad as people think. Prices need to drop. We've been consuming more than we can afford to, which (along with the printing of more money by the FED) has kept prices artificially high.
Please. I beg all of you. Go read articles from the Ludwig von Mises Institute, or on www.lewrockwell.com, or at the Campaign for Liberty website. The government has promoted perverted economic policies for decades and this recession is a result of that. We're trying to cure the symptoms and not the actual problem... a problem that government intervention created.