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Congress: Don't buy a car today, we're planning a sale.

June 12, 2009

Now that it has taken over Chrysler and GM, the government is devoting more time to developing auto promotions. They are clearly still learning.

The IRS this week said the deduction for sales taxes on the purchase of a new car would also be available in states without sales taxes. But at the same time, the House of Representatives pretty much wrecked that promotion by passing the largely-insane "Cash for Clunkers" bill, HR 2751. Buyers with any sense will now wait and see what sort of deal will come out of House-Senate negotiations before putting their money down.

The Detroit News says that the Senate has agreed to go along with the plan, which will provide vouchers of $3,500 or $4,500 for the purchase of a new vehicle with better mileage than the trade-in. A used car has to be a 1984 or later model with combined rated mileage of 18 MPG or less; there is no mileage floor for used trucks. No tax credits will be involved.

The $3,500 voucher is available:

- For cars with mileage at least 4 MPG better;
- For "Category 1" trucks, a 2 MPG improvement, and
- For "Category 2" trucks, a 1 MPG improvement.

I think "Category 1" covers light trucks, and Category 2 is for full-size trucks.

These relatively lame mileage requirements make it obvious that this is really more about throwing money at the auto industry than about saving fuel.

The $4,500 voucher is available:

- For cars with mileage at least 10 MPG better;
- For "Category 1" trucks, 5 MPG improvement, and
- For "Category 2" trucks, a 2 MPG improvement.

To keep your other neigbor with cars on blocks in his front yard from making out like a bandit, the bill requires that the trade in be:

(A) is in drivable condition;

(B) has been continuously insured consistent with the applicable State law and registered to the same owner for a period of not less than 1 year immediately prior to such trade-in.

There is no income limit in the House-passed bill. That means those of us who already own fuel-efficient cars get to pay taxes to give your neighbor with the Hummer $4,500 to trade in his old Cadillac Escalade on a Lexus Hybrid SUV. The program is expected to cost $4 billion.

For a primer of the unintended consequences likely to ensue from this insanity, go here.

Tags: Cash for Clunkers.dumb.Stimulus.

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