Update: Clunkers

Consumers who bought new cars with the Cash for Clunkers program that I wrote about here have come to a nasty realization when they went to register their new cars. They owe both state and federal taxes on the money. Some consumers also got a matching rebate from the car manufacturer, which means they increased their income by anywhere from $3500 to $9000. Keloland Television's Shawn Neisteadt broke the bads news yesterday.

According to The Market-Ticker today,

"When you buy a new car you pay tax on the difference between the new car's purchase price and the trade-in you present to the dealer. This is an intentional distortion in the law that is intended to favor dealers over private-party used car sales; if you sell your used car privately the new buyer pays sales tax but you do not get the offset on the purchase of your replacement vehicle - the only way to get that is to trade the car.

Dealers use this, of course, in negotiations, effectively pocketing the sales tax - and why not? It's a real difference to you!

But the "cash for clunkers" is not a trade-in. That's a $4,500 check from the government, basically". . . "dealers had customers so giddy over the "free cash" that they were selling cars at full sticker price besides - effectively, in many cases, turning the entire "cash for clunkers" money into pure dealership profit and managing to charge you tax (twice) on it as well."

It seems the average American hardly stands a chance of ever really getting ahead. But, I guess it goes to show everything comes at a price.