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Cash For Clunkers Program
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Update: The bill has passed both chambers of Congress, getting through the Senate on Thursday, and President Obama is expected to sign it into law soon.
The Cash for Clunkers program would provide a voucher worth $3,500 to $4,500 to consumers trading their vehicles in. The vehicles have to be in running condition and get less than 18 miles a gallon in fuel efficiency. The value of the voucher is determined by this schedule:
- For passenger cars, the new car has to get at least 22 MPG (EPA combined MPG). You get the $3500 voucher if you get an improvement of at least 4 MPG, $4500 for at least 10 MPG.
- For light duty trucks, SUVs, and minivans, the new vehicle has to get at least 18 MPG. You get $3500 for an improvement of at least 2 MPG, $4500 for an improvement of at least 5 MPG.
Here’s the WSJ chart describing the benefit:
The bill has two purposes:
- Removes older, less efficient cards from the road. Many of the cars that qualify are probably worth less than the $3500 or $4500 voucher, so consumers are still holding onto them because it makes sense to. This would give that added incentive to upgrade.
- Increases sales of new cars.
There are downsides to the bill though – the bill would call for the cars to be crushed and the vouchers would only applicable towards the purchase of a new vehicle, rather than a used one.
I like the idea of it but I think we’re creating a lot of special tax credits that prop up various industries. Also, not everyone is able to take advantage of these new credits, which is a bit unfair. The prime example is the $8,000 first time homebuyer credit, which was created to artificially boost the housing sector. Now we have this proposed $4,500 credit that will only help people who are close to buying a new car.
What do you think?
(Photo: wickenden)
{ 57 comments, please add your thoughts now! }
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My real problem with this is the fact that few cars over the past 15 years have gotten 18 mpg or less, as required by the law for a trade in. It makes this whole thing pretty dumb.
If the mileage for your tradein was more like 25 mpg, that would make more sense.
Also, I see this more as an environmental program than economic, although it does both.
Does it cover buying a motorcycle? Great MPGs on a moto.
Not a big fan of this. This is just wasting tax payer money IMO.
I have a 1996 Ford explorer with 230k miles which gets 14-city 18-highway. What would a 4500 tax credit do for me when I file my taxes at the end of the year. I will make about 20k when the year ends (25k salary but I started in march(
)(so much for that Bachelors degree) I don’t know how tax credits translate into how much your actually saving or getting, I dunno
It would depend on the classification of the credit.
If it is a non-refundable credit your tax liability would be reduced by the credit until the liability was zeroed, then the rest of the credit is lost.
If it is a refundable credit you get the entire amount. First it will be used to zero out tax liability and then the balance will be included in the tax refund.
Example:
I am assuming filing single with no dependents, semi-monthly pay, and that you claimed a withholding of 2 on your W-4.
10 months @ $25000 per year is $21,000
$25,000/24 = $1,041.67 per pay period
Using the Withholding Tables this amounts to a federal withholding of $60 per period.
Estimated Taxes:
Gross Income: $21,000
Personal Exemption: ($3,650)
Standard Deduction: ($5,700)
Taxable Income: $10,650
10% of first $8,350 = $835
15% of $10,650 – $8,350 = $345
Total Tax on Income: $1,180
Withholding: 20 * $60 = $1,200
Estimated Refund: $20 (No Credit)
Estimated Refund: $1,200 ($4,500 Non-refundable Credit)
Estimated Refund: $4,520 (Refundable Credit)
In this case the $4,500 credit is worth $1,180 as a non refundable credit and face value as a refundable credit. As tax liability increases, so does the value of non-refundable credits, up to the point that the tax equals the credit.
The tax brackets, exemption, deduction, and withholding estimates for 2009 come from information found at http://www.irs.gov.
Fortunately, the credit is given to the Dealer and not to you. They have to claim the credit as income, not you! This means NO tax implications for you.
This could work for those huge gas guzzlers..
I drive a 2004 Toyota Camry. It gets about 26-28 mpg. There really aren’t many cars out there that I could trade this for. Even hybrids don’t beat that by 10 mpg. Too bad. Getting a new car is fun.
Thanks. Will tip my parents off on this new program.
Law of Unintended Consequences:
Used Clunkers just went up by $4,500. Those parents of those poor teenagers won’t be able to afford to buy them a car.
This has to be one of the dumbest government ideas ever. With the amount of taxes I pay each year to the federal government, I am financing 5 cars…to get a minimum of 10 mpg of savings???
Someone needs to tell those 535 idiots that we have in Congress that we are broke. Luckily, the bond market is about to do that for me.
One of the dumbest? While I share your sentiment that it is ridiculous, it certainly isn’t in the top ten. We have so many great things to choose from.
I also read that the bill contained a provision for permanently destroying/disabling the trade-ins, thus not allowing them to be sold for parts at junkyards (not sure if that stayed in the final bill).
That would definitely have unintended (or intended) consequences that would hurt alot of the people that repair their own cars and go to junkyards to find great deals on parts. You can argue that you’re forcing more and more low fuel efficient cars off the road as fewer parts become available. But in reality you’re really hurting a lot of people that are trying to save money, and recycling old parts at the same time.
When this is completely through Congress, I wonder if it will become the “GM cars for clunkers” program instead of cash.
I don’t like this bill either — it will have such a small benefit in fuel economy, and really it just feels like a thinly veiled stimulus package for the auto industry.
I would like the federal government to stop spending my tax dollars on items that should not be decided in Washington.
This is the government artifically stimulating demand by removing supply . . .
The real kicker will be when we find out that the old vehicles are being resold in some corrurpt scheme with some politician’s relative involved.
You may laugh at that idea, but don’t forget that you heard that here first!
Hahah, or some politician’s family owns a chop shop or a bunch of old clunkers they need to get rid of. All the cars on blocks in the yard suddenly have value… $4500 to be exact.
I’m not sure how much this helps the enviroment since it does take petroleum and energy to make a new car so where is the line where a car is so old that getting a new one with better MPG is a + for the environment? Has anyone looked at this before?
Probably not. When Hybrids started touting the better for the environment claims, reports came out showing how damaging the manufacturing process for the batteries was to the environment. If you include battery manufacturing in the scope of an environmental impact study, driving a fleet of Chevy Suburbans has less impact than a single Toyota Prius due to the hazardous materials needed to manufacture the batteries. I have read some of the reports, but unfortunately can’t find them right now.
It’s similar to the corn ethanol feasibility studies, throw out scope until it meets your predetermined results.
What about all the waste (ei old cars) create?? I completely agree w/ you… not very earth friendly.
Not to mention what we do to store old batteries in the future…that will be an environmental hazard.
Unlike the pollution from petrol-powered vehicles, at least the batteries can be stored in one place – preferably under a mountain like nuclear waste is currently stored.
Yes, it’s not pretty, but until we have fully-electric vehicles, it’s the best option that I can see; do you have a better one?
Since I design and build power plants (clean, coal-fired plants) for a living, I am hoping to see fully-electric vehicles in the future. The power has to come from somewhere and I am a part of the cleanest and cheapest source of electricity. Of course, there seems to be more outrage over power plants than personal vehicles when it comes to pollution.
Is there a limit to how many old cars you can trade in? Because I can see some people going around the classifieds or Craigslist buying old POS rattletrap cars for peanuts, and then turning around and trading them in for $3500-$4500 credit apiece. Hell, if it were retroactive I’d do it, because I got a new car just a year ago.
Don’t mean to pop your bubble Diasdiem. You must show proof of insurance and registration for a year……..If you can’t do that, then you cannot cash in your clunker….
You say the new car has to get at least 22 MPG. Does this mean a “new” (2010) car, or a new (slightly used)car to me?
They have been doing this in Germany for a little while. Was an article about it in the Wall Street Journal a few months back. And I don’t think Germany was the first place, the article mentioned other countries that had done this before.
At least I think it was the WSJ, it may have been the economist. Anyway, I know I read it somewhere.
I think it’s a dumb idea… unless you’re in the car business.
Wait, didn’t the U.S. government just buy a car company?
I am not sure what problem this is intended to solve. If you want to remove old, inefficient vehicles, introduce a scrappage allowance without the requrement for a replacement. As implemented, it will not generate new sales so much as subsidize existing ones.
It may drive more buyers to the dealers, but it will be ALL dealers, not just GM and Chrysler (neither of whom makes a car I want to buy at a price I can afford).
In the long run, it will simply push up the cost of all new vehicles by a few thousand dollars as the Dealers find new ways to grab a bigger slice of a bigger pie.
As for me, I still drive a seventeen-year-old car that gets about 30MPG on my daily commute. How many new cars can do that?
Like most hare-brained Government subsidies, this one is rife with unintended consequences.
I didnt quite understand this. So I have a honda accord which gets about 20 mpg right now. It is a 1994 built. So if I trade that in and get a newer car with 30 mpg I get 4500 USD from the government?
Your car must get less then 18 mpg to qualify.
Need to find out how my congressman and senators voted. Can they be so stupid as to have had voted for this bill? Wonderful for someone who has the money to buy a new car but how about the poor jerk driving an old junker and can barely scrape enough together to buy a gallon of gas? We are expected to do anything and everything to save our “Green Earth” for the children. Who’s children? The Chinese.
Am I the only one who jumped for joy when this passed? As a recent college graduate driving a 1996 Ford Explorer with 235,000 miles, yes it’s paid for, but I spend 200 a month on gas. Now I will be able to get 4500 off a brand new honda civic coupe. The program plus dealership incentives plus 0% financing, plus 2k that I saved up, I will be able to buy one of the most affordable and reliable cars that will last be a very long time for under 10K!!!!!!!!! Amazing deal!!!! How can I afford not to take advantage of this? I think those driving newer cars worth more than 4500 should just be lucky they’re not in my position. My car could go any minute, is terrible on gas and id lose my job without my car. Not every program will help everyone, but this one IS going to help me and instead of anyone complaining about it, please just go to work so your tax dollars can get me my new Honda Civic!!!!
ARE U STUPID?? HAVE U NOT LEARNED ANYTHING FROM WHATS GOING ON TODAY IN THE UNITED STATES… ESPECIALLY DETROIT! MAYBE YOU SHOULD BE BUYING AN AMERICAN CAR! AND HELPING THE AMERICAN AUTO INDUSTRY!!!!!
You’re right, If I want a small coupe good on gas, I should go for a Cobalt? HAHA yeah right!!! I’ll take my civic, thanks for your concern though. My money, my choice. You wanna foot the bill I’ll take any car you want. I want affordable and reliable and hondas fit that bill more than any other car, especially with the 4500 discount tax payers are providing.
uh hello – WE ARE FOOTING THE BILL!!!
Probably. My car is a seventeen-year-old Saturn with over 250k on the clock; but I have no interest in buying a new vehicle, which is what this bill is all about.
Good luck with the car payment though.
Well, after your car bites the dust after the cash for clunkers program ends, enjoy your higher car payment. I’ll have a new honda for cheaper than you can get a busted up saturn. So how’s the future looking for Saturn? The fact you tried to 1-up me on my car being old and high miles, damn big of you!
Jason,
You missed my point. I was not trying to “one-up” you, nor was I trying to say that Saturn was a superior brand. The point that I was trying to make was that running out and buying a brand new car with money you don’t have is not necessarily the best solution.
New car values drop “like a rock” (no pun intended). Even if the dealership doesn’t help themselves to the lion’s share of your $4500 you will still be “upside-down” – owe more on it that it’s worth – about five seconds after you drive it off the Dealer’s premises. This is why I do not buy new vehicles. Did it once, never again.
Not that it matters, but the last time I looked, Penske was acquiring Saturn… so they may actually _have_ a future, after all.
I do not believe that this measure was designed to help the buyers, I believe that it is yet another bailout for the Auto Industry. But that’s just my opinion.
Oh, and there will be no car payment, higher or otherwise – I already have the money saved up to replace my vehicle (with a decent used one) when it dies. Yes, I know that’s quaint and old fashioned, but I’m funny that way.
Good luck, whatever you decide to do.
I don’t qualify because my car already gets good gas mileage. But my dad swears by the car buying process here:
http://excarsalesman.typepad.com
I have a feeling dealers are going to automatically increase prices because of the increased demand (artificial) for great MPG cars. So the thousands of savings from this bill for consumers is not entirely accurate.
With the price increase, I’m certain some markets you’ll come out even as if they never offered this voucher. It is poorly written legislation.
“With the price increase, I’m certain some markets you’ll come out even as if they never offered this voucher. It is poorly written legislation.”
So your saying some cars are going to increase in price 4500. OK… delusional…
Disregard your “feelings”…
Your post was poorly thought out. I’m sick of people complaining about this. The 4500 is on top of all the other incentives and deals dealerships offer. This legislation is perfect for my about to bite the dust, not worth anything car.
Is it a tax credit program? I thought the amount ($3500 or $4500) was reduced from the price of the new car. I just ordered a new car yesterday, but we haven’t completed the paperwork.
Hey Jim,
Did you happen to catch how long this program is supposed to last? I have a 96 chevy truck with a 454 that has been sitting for about 2 years. Just haven’t taken the time to list it on Gregs list yet. I figure I might be able to get $3000 for it. But now I am thinking it might be better just to trade it in.
My wife’s lease is up on her tahoe next june. If this program lasts that long it may make more sense to just hold onto the truck, turn in the tahoe and then have the old truck to trade in and buy a new one.
Also I didn’t see whether or not this is straight cash back from your taxes or a deductible on your taxes.
Lasts till November, rumors it will go longer if successful. Well you better of have that truck insured for the past year to take advantage of this. It’s the same as a trade in, you’d get a reduced price for the new car as you would for any trade in.
Thanks Jason, ya it has been insured. It is just sitting there because I actually really like the truck and have a hard time getting rid of things. So it is actually an instant reduction in the purchase price of the new car and not a tax credit that you get later? That is even better.
Yes, I can’t wait since the most anyone ever offered to buy my car is 600.
Keep checking cars.gov for updates.
is this the start of limiting used cars available to low income people – forcing them to use public transportation? And in a few years will the prices of new cars and gasoline be regulated by the government so that the middle and upper class cannot even own a car? When the supply of new cars becomes limited – will the government decide who gets them? At that point the majority of us will be dependent upon public transportation – most likely run by the government. Our movements will be very regulated – I am starting to feel like a speciman in a bug collection!
I am as right-wing and suspicious of government as they come, but that theory simply does not make sense to me.
I cannot see how this law will restrict access to used cars – chances are the car you want would not qualify for the credit/allowance, and you would probably not want one of the vehicles that does.
T(r)olls and roadside cameras, however, are another issue entirely… but are not germane to this discussion
Thanks for your input – I am concerned that this program, besides wasting tax dollars, has a second agenda – destroying the used cars so that they are not available to people who cannot afford new ones – plus the parts will not be available to people who still own the older models so it will be harder and more expensive to repair them. The used cars that will qualify for this credit may not initially have that much of an impact on the market, but it may just be the start of more programs and laws that limit the freedom of choice and adds more government regulation to every area of our lives.
This is the most relevant section of this thread. This program isn’t about helping dealerships, however it is about clearing inventory to make it easier to close all the dealerships that the government decided to scrap. This is really only going to help the banks making all the new loans. Also each sale will send tax revenue to the government. You might think “but the government is spending money to generate tax revenue???” No, the government is going further in debt and generating tax revenue, because tax revenue is “liquid”. And as far as this program “limiting cars available to low-income people”, well you can bet some of that “liquid” tax rev will go towards helping to buy new gas-sippers for low incomers since there will be fewer junkers available for purchase.
When I first heard about this bill I was extremely excited because my 1995 Buick Regal is on it’s last leg. Doing research today though, I have found that the qualifications state that the old car has to get 18mpg or less! My car gets a combined 20mpg! I am devastated. There aren’t too many cars that get <18mpg. This seems like a way to reward the rich since they were the only ones that were able to afford the expensive gas guzzling SUVs over the past 10 years!
Well it’s going to benefit me and I am farthest from rich as you can go. I make less than 25k a year and luckily I was rich enough to pay 600 dollars for a 96 Ford Explorer with 200k miles a few years ago. Yeah me having a whole 600 to buy that piece of crap of car, yup big reward for me and my richness.
Ok. This is not good for consumers. Look at all the scams popping up on the Internet and at dealerships with this program. If you don’t watch closely, you’ll be taken advantage of. Watch video,
http://tinyurl.com/nlv3ed
I’m trying to do this right now but my junk 1992 BMW 325i comes as “unknown” in the Vehicle Category and it is a passenger car, it get a combined gas of 16 mpg. This program was rushed through and they went to run our health care. I don’t really agree with the program but if you going to do something then do it right. I will not get the 4500 because the lazy A@@holes in the govt. They can read a bill before signing it and they can’t do anything correct.
Tom
What people don’t understand is that this program will NOT help low-income families who can’t afford to have a car payment! Sure you get $3500 or $4500 trade in value, but you still have to pay for the rest of the vehicle! How can lower incomes do that?
For example : A family of 4 with only 1 adult working and the other unemployed, 2 small children in school. After they pay their mortgage, utilities, grocery bill, etc … there isn’t any money left over for a car payment! This is just dumb. Plain dumb. The only people who can afford to do this Cash for Clunkers are people who have the money to buy a car in the first place!
Let’s get real America ! ! !
The_Duck, I don’t think this program was made to support the low class of America…
The thing that bugs me is that my ‘96 Chevy Lumina 3.1L is rated at 21 combined MPG. When I fill it completely which is 16 gallons, I can drive it for about 13 days, at 21 miles per day…
When I do the math…
13 days x 21 miles/day = 273 miles per tank
273 / 16 = 17 MPG
And the 21 Miles I drive, about 16 of them are highway.
Although my car is truly below the MPG mark, the government statistics show that it is not…and therefore my clunker does not qualify.
this is just another example of people trying to have things they can not afford, and they are being enabled by the government. Didnt people learn anything from the housing bubble bursting?? People were given loans they couldnt refuse, but couldnt afford. I think we are a nation of “gotta have it now”. I teach my kids the importance of saving. But just to correct a previous comment, there is a difference between low income, and low class.They are not the same, a rich person can be low class.
This program should bust anyone in the face that is looking to buy a new car through this deal. Hell what is wrong with a good efficient used car. Surely you can get one through this program, or at least I hope you can. There is no way in hell I’d put another bill on myself. So if you can only buy a new car out of this program, then to hell with it.