Sunday, August 02, 2009

What was he thinking? - Manzullo: Congress Should Expand "Cash for Clunkers" Program to Allow Vouchers for All Vehicle Purchases

Here's an excerpt from Don Manzullo's e-mail announcement:

[ROCKFORD] U.S. Rep. Don Manzullo (R-IL) today said the federal government should dramatically expand the popular “cash for clunkers” program by removing all conditions and giving vouchers to all Americans who buy a new vehicle. Such a program would energize our economy, re-start the auto manufacturing supply chain, and put Americans back to work, he said.

Manzullo voted Friday to shift an additional $2 billion in previously-approved federal funds to the original cash for clunkers program, which was frozen late Thursday after officials realized the original $1 billion appropriated for the program was exhausted after just a week in operation (it was scheduled to run until Nov. 1).

He goes on to claim:

The original program gives prospective car buyers up to a $4,500 voucher for trading in a gas guzzler (18 mpg or less) in exchange for a more fuel-efficient vehicle. According to the Alliance of Automobile Manufacturers, the initial $1 billion cost of the cash for clunkers program generated $5.5 billion in economic activity, including substantial tax revenue for state and local governments.

Working these numbers, the $1 billion is divided up into $4,500 vouchers, equaling a sales of 222,222 cars. These sales "generated $5.5 billion in economic activity" or, $24,750 per car. Let's continue with his e-mail:

Manzullo introduced legislation earlier this year to give Americans a $5,000 voucher to purchase a new vehicle, no strings attached. The New Automobile Voucher Act of 2009 (HR 1606) would have provided a one-time, $5,000 electronic voucher from the U.S. Treasury at the point of sale of a new vehicle through the end of 2009. It would have provided vouchers for 15 million new vehicles (original cash for clunkers bill covered 250,000 new vehicles).

Now, the bad math starts to show. $1 billion / $4,500 = 222,222 not 250,000. Now, he wants to provide $5,000 vouchers for 15,000,000 million new vehicles. Let see, $5,000 x 15,000,000 = $75,000,000,000 (yes, that's $75 billion)!

Of course, it keeps getting better:

Every one million in new vehicle sales has the following impact on the economy:

* Creates 60,000 jobs (10,000 at vehicle assembly plants; 50,000 at suppliers, auto dealers, and other businesses).
* Provides $750 million in tax revenue to the federal government.
* Provides $1.4 billion in sales tax revenue to states.
* Saves federal government $1.4 billion in unemployment payments, food stamps, job retraining and COBRA health subsidies.

So now we see what the results may be. For every 1 million cars there is:
  • $750,000,000 in federal tax revenue.
  • $1,400,000,000 in state sales taxes.
  • $1,400,000,000 "saved" in unemployment payments, food stamps, job retraining and COBRA health subsidies.
The total of these is $3,550,000,000 ($3.55 billion). This where my seemingly simple mind gets lost. How is it a benefit to the tax payer to take $5,000,000,000 ($5 billion) in taxes ($5,000 x 1,000,000 cars) and have $1,450,000,000 ($1.45 billion) (or more) of that money just disappear?

How about this much simpler "Stimulus" plan: Declare that cars will be completely tax free for a certain period of time! Let's say, until 1/1/2010. Here's why:
  • It will still greatly encourage car sales
  • It will still "save" unemployment payments, food stamps, job retraining and COBRA health subsidies.
  • No new taxes to "pay for it".
  • All for less than half the cost - $2,150,000,000 ($2.15 billion) in "lost" tax revenue.
I don't know about you, but, I would certainly be much more likely to buy a car if it were tax free. Is that not stimulus enough? Even if you only sell half the number of cars, it looks to me like you (the people) are still ahead.

What am I missing here?



Anonymous said...

I think there is a misunderstanding. I re-read the press release and Manzullo talked about the benefit of the sale of 1 million new vehicles. The Cash for Clunkers received $1 billion in funding to support an estimated 250,000 new vehicles. In addition, you may be interested to know that for this year and next, people are also able to deduct state and local sales taxes on the purchase of a new vehicle. So, your "tax free" idea is almost accomplished.

JustBob said...

I would have to agree that making the taxes collected deductible is helpful. Unfortunately, the good that it does is a only a small fraction of what could be done. The problem with the "tax deduction" is that it's done after the fact (the taxes are still paid) and the benefit is typically less than 30% of actual amount paid. To put it another way, your still paying at least 70% of the taxes! The tax deduction does nothing to lower the consumer's monthly car payment. Given the numbers provided by Manzullo, the benefit of the tax deduction works out to be up to $420 per car.

The bigger issue is the destructive "redistribution of wealth" going on here. As I was able to show in the article, for each car sold, $1,450 is just "given away" (wealth redistributed) or lost. Given the efficiency of government, the money wasted is probably much higher. My plan is much simpler. By not collecting the taxes in the first place, all of the waste and redistribution simply doesn't happen!

With situations like this one thing becomes clearly evident: The government is admitting that they are over taxing the people, to the point of damaging the economy. Rather than fixing the problem (by lowering taxes), they're try to pacify us by throwing us these small "bones". This is much like taping that leak in your radiator hose rather than replacing the hose. One day soon that hose is still going to fail!

So, the more I think about this, the more I realize that I also made the mistake of supporting a program to pacify the people, instead of fixing the problem. With that, I withdraw my version of "Cash for Clunkers". Let's just fix the tax code and be done with it!