President Signs “Cash for Clunkers” Bill
June 26, 2009
President Obama on June 24 signed legislation aimed at boosting the sale of vehicles at financially struggling U.S. automobile dealerships. The so-called “cash for clunkers” program provides $1 billion in tax-free vouchers to automobile dealers who participate in the new program. The program vouchers, worth $3,500 or $4,500, will be given to dealers when consumers trade in old vehicles for ones with higher fuel efficiency. The vouchers will not be considered taxable income for the car buyer.
The new law limits the number of vouchers to one per customer, including joint registered owners of a single eligible trade-in vehicle.
Cash for Clunkers has a negative consequence. It will harm donations of cars to charity because the voucher is much greater than the tax deduction. Congress could have stimulated car sales by just returning to allowing car donors to claim the book value as their tax deduction. Since most donated cars are recycled, there would be an environmental benefit as well.