Thursday, 11 June 2009

Incentives matter: cash for clunkers file

Will Wilkinson on the recently passed "cash for clunkers" legislation in the US:
OK. Let me get this straight. I can get $4500 toward a new car as long as my old car gets terrible gas mileage. Well, I’ve got a 1996 Civic, which gets 30-something MPG. But it’s worth less than $4500. So I guess I should sell it for what it’s worth ($2-3000) maybe, buy a total piece of shit for as cheap as possible, and then exchange that for $4500 off a new car? I’d be several grand ahead. Of course, most of the models of new car I’ve got my eye on get worse mileage than a 1996 Civic. So if this plan induced me to buy a new car when I wasn’t going to, which it might, and I get the kind of car I think want, taxpayers will have paid me $4500 to drive a nicer but less fuel efficient car than I’ve got.

Or maybe I should just buy a clunker, get the trade-in, then instantly sell the brand new car for $2000 off sticker and pocket the rest. Anyway, better move quick. Lemons go fast when everybody’s thirsty for lemonade.

1 comment:

karenc said...

60% the cars that are currently donated to charity will now be eligible for a $3500 or $4500 voucher under the cash for clunkers program. Since the tax deduction for donating a car is only $500 or what the car sells charities won't be able to compete with the program and charitable car donation will end. A better idea is to just change the amount a person can deduct for donating their car back to the book value. That way every car is eligible, the government doesn't have to spend $4 million of our dollars giving away vouchers and trying to administer a program that is way too convoluted!
Karen Campese