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The Bill’s a Clunker, So is the Post’s Take on It

June 24th, 2009 · 2 Comments

Congress has approved and sent to President Obama, as part of the Supplemental, a $1 billion (down-payment on a) Cash-for-Clunkers bill. As structured, this bill is a clunker that will do a poor job at achieving any (and, well, all) of the legitimate objectives of such legislation:

  • Stimulate economic activity
  • Improve traffic / highway safety
  • Help the population move to better and more appropriate transportation
  • Reduce oil dependency
  • Reduce environmental impacts

Due to its poor structuring and poor standards, the passed Cash for Clunkers bill falls short basically on every legitimate criteria against where it could have taken the nation.

Thus, with reason, yesterday’s Washington Post editorial page attacks the Cash for Clunkers bill.  But, the Post‘s editorial board go a step too far with A Clunker of an Idea, attacking the very concept of what can be useful and legitimate public policy rather than focusing on how to have made this bill a useful one.

First, to a certain extent, the Post exaggerates the energy efficiency gains in the bill.

Here’s the deal: Motorists who have owned an older car or truck for at least one year may trade in their vehicles and receive vouchers to help pay for new, more fuel-efficient models. The bigger the fuel-efficiency gain, the bigger your voucher, up to a maximum of $4,500.

In fact, the bill’s structure provides opportunities for getting substantial (starting at $3500) vouchers for only marginal fuel efficiency gains.

The editorial highlights one of the substantive problems of the bill.

The program is capped at a total cost of $1 billion, down from $4 billion in earlier versions. Even $4,500 per clunker may not be enough to help many owners trade up: Clunker “owners are either not looking for an increased car payment or cannot afford to purchase a new vehicle, which averages nearly $30,000,” a report by analysts at Edmunds.com concluded. And the plan offers nothing for owners of cars with a trade-in value equal to or greater than $4,500. Edmunds.com believes the program will “struggle” to produce sales of 250,000 vehicles — or half of Congress’s goal.

They then shift to more questionable criticisms, such as that the bill will harm other portions of the economy by stimulating new car sales over repairs of old cars and other non-automotive retail sales.

The Post then moves onto asserting that the best path forward would be raising gasoline taxes.

If you think the government could find better uses for its money than subsidizing this shell game, we agree with you. If you think the best way to move current car owners into more fuel-efficient models would be to increase motor fuel taxes, as Europe did in tandem with its cash-for-clunkers programs, we agree with you even more. Alas, this could be just the beginning of cash for clunkers. When the program’s initial round disappoints, as seems likely, pressure will mount to expand it.

While a gasoline tax might make sensible policy, for many reasons, the political and current economic reality makes this an extremely difficult (if not impossible) sale. But, if we are going to talk “taxes”, why not recognize that property tax structure, in most parts of the nation, creates a disincentive (a serious disincentive) to moving to a new, more fuel efficient and safer vehicle.  Auto taxes, in many states, are property taxes based on value. Thus, a “new” Ford Fusion Hybrid (40 mpg) would be taxed on a $25,000 or so value while a 20-year old Ford 250 might have a tax value of $1000.  Thus, if in a five percent property tax state, that Fusion Hybrid would cost $1250 in annual property tax while the Ford 250 would cost $50.  It would take an awful lot of gasoline tax to make up for that $1200 annual difference.  Thus, if you want to talk about taxation disincentives to moving to newer, more fuel efficient cars, the highly visible and highly difficult politically gasoline tax is no more than one piece of the puzzle.

Another way of looking at this are through the lens of all the incentives for purchasing energy star appliances, more efficient heating and cooling systems, and for home insulation. The Washington Post isn’t out there arguing that these make bad policy. (After all, if I spend money today on a new air conditioner, that means that I’m almost certain to be spending less money on repairing and maintaining that old one.)  Thus, why is that acceptable policy and providing fiscal assistance to get old, dangerous, and polluting vehicles off the road isn’t?

Sadly, the Post attacks Cash for Clunkers as simply a “shell game” rather than examining the valuable policy objectives that a sensible “Cash for Clunkers” structure would support.

  • Increased economic activity
  • Safer transportation system
  • Reduced pollution levels through more modern vehicles and higher energy efficiency
  • Reduced oil dependency
  • Quicker turnovers of the automotive fleet

Rather than challenging Cash for Clunkers as simply bad policy, the Post should awaken to the reality that while this is a clunker of a bill, there were better alternatives being considered in Congress and that a well-structured and well-designed “cash for clunkers” can help the nation achieve valuable objectives.

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Tags: automobiles · Energy

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