Wednesday, August 19, 2009

Would you invest up to $4,500 to get $8,000 for six months?


One argument I have not seen in the Cash for Clunkers program is the personal income tax aspect.

Sales commissions are taxed at a 40 percent rate. Let’s assume each new car sold is $20,000. That means the person selling the car forks $8,000 over to Uncle Sam in the form of personal income taxes. Uncle Sam has that $8,000 to use until next spring when the sales person files income taxes; and presumably gets a large part of that $8,000 back.

The best part I’ve heard is the government has yet to fork over any of that “up to $4,500” for one clunker. They’re holding onto that money for as long as they can. At the same time, they’ve already got that sales commission income tax and are probably getting interest on it in some form – I would hope.

So next time some jerk starts whining about the Cash for Clunkers program, tell them you’ll gladly give then $4,500 in a few months if they will give you $8,000 right now. Seems like a good deal to me.

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