With auto sales at crisis levels, Washington is trying to figure out how to get Americans buying cars again.
Tax deductions
It would be an “above the line” deduction, meaning even tax filers who don’t itemize deductions could still get the benefit, according to the bill introduced by Sen. Barbara Mikulski, D-Md., and Rep. Bill Pascrell, D.-N.J.
Auto loans of up to $49,500 would qualify. Car buyers borrowing more would still be able to deduct the interest and sales tax for the first $49,500. The benefit wouldn’t apply to individuals making more than $150,000 or families making more than $250,000.
Cash for clunkers
The second plan is more politely known as “fleet modernization.” It combines economic as well as environmental goals in one package.
Under a bill introduced by Sen. Dianne Feinstein, D.-Calif., owners of older cars would get vouchers worth thousands of dollars toward the purchase of newer, more fuel-efficient vehicle. For the customer to get that cash, the car dealer would have to certify that the trade-in was getting scrapped and not resold. The car’s vehicle identification number (VIN) would be tracked to make sure it never shows up on a vehicle registration again.
Short term vs. long term
“The ‘money for clunkers’ may be a good idea, period,” said Michael Smitka, a professor of economics at Washington and Lee University in Virginia, who focuses on the automotive industry. But it’s a good idea more for its environmental benefits than for its economic effect, he said.
Smitka generally doesn’t support the idea of short-term incentives to boost sales, because he believes the industry needs to find its way through the crisis on its own. Short-term incentives make long-term planning difficult because they obscure the natural, underlying vehicle demand, he said.
Once the crisis is over, he believes that taking these incentives away could cause another disruption. “It could cost an awful lot of money for gains that come back and bite you when the policies are taken off,” he said.
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