You might say that this plan– getting Uncle Sam to subsidize new car payments– is a warm-up for the main event: the big ass bailout. And you’d be both wrong and right. Right, because Detroit is using all the political leverage it can muster to extract whatever drops of sustenance it can secure from the federal teat. In that effort, Motown’s running all sorts of ideas up the proverbial flagpole, including perverting manipulating the federal tax code. And lo and behold, Toyota saluted it! “Toyota would be supportive of moves such as tax deductibility of auto loans,” ToMoCo’s U.S. Veep for corporate affairs said on his post- October-bloodbath conference call. Needless to say, GM was non-committally committed to the idea, in a general sort of way. “It’s really critical for the governments and the banks to aggressively help us to revive the credit market and facilitate consumer lending activities,” Mike DiGiovanni, a GM sales analyst, said on his conference call reported by Bloomberg. As for the “wrong” part, this measure, and the “cash for clunkers” initiative making the rounds, wouldn’t provide NEARLY enough relief for Motown’s mauled motoring mavens. But hey, you gotta start somewhere… Oh wait! They already got those $25b worth of D.O.E. low-interest retooling loans. Only not, ’cause they’re hung-up on “technicalities.” Sorry. Carry on.
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As a libertarian, I’m way against this. As a person with a car loan (saved by 0%), I’ll take the deduction.
No.
Tax deductions for mortgage interest is bad enough.
You need to change the deceiving title of the article to ..Federal Income Tax Deductions for INTEREST on car loans
26theone :
Point taken. Headline amended.
This is pretty much a stupid idea, and a not-effective-one either!
Lets assume you are in a high tax bracket, with a near-as-darn 35% marginal tax bracket when you consider federal and state income taxes.
And buy a $40K car, at 5% interest rate.
In your first year, your tax savings is a whopping $700, and going down after that. And if you are in the $150K+/year range (in order that the deduction is that high), $700 is not going to make a huge difference in your purchase decision on a car.
So, they want a tax deduction on an EXPENSE? No matter how crappy the real-estate market has been, it remains an investment, not an expense like cars are.
So much for the careful budgeters who pay their cars cash. It’s the kind of proposal that should get somebody fired. If my elected representative ever comes in favor of that, I’ll do my best to make sure he or she will indeed get fired, regardless of part affiliation.
I payed taxes during previous tax code and we had deduction for any loan. That was when tax bracket was 50-70%. The revenues weren’t as good as today from individuals and corporations. Economy was in crapper as well. We need simpler tax code not more complicated and lower taxation as well.
I’m old enough to remember when all interest payments were tax deductible. Then, it was mortgage interest only, and that helped create the mess we are in: People took out a second to buy stuff like cars. Tax deductible. Caused the mortage bubble. Here we are.
I say: Go back to all personal interest payments being tax deductible as it was back when.
But what do I care. I live in China. They are way ahead. They even abolished cap gains tax on savings. No stupid 1099 stuff. Come on down!
I say: Go back to all personal interest payments being tax deductible as it was back when.
Exactly! Why just cars?
John
Taxe policy should be used to collect the money needed to run a government ….pay police …build roads … fight a war …hire a designated driver for Ted Kennedy, whatever.
They should not be used to mass-direct individual behavior. This is sure to make a bad situation worse.
This type of policy really curdles my blood.
We have enough of a problem in our country with pointless pork that’s designed to subsidize the parasites of the modern age.
If these corporations are compelled to help the little guy so much they should be doing it themselves. At this point, the little guy doesn’t need any more ‘favors’ from these whoremongers.
What do those of us who pay off loans early because it is more financially sound, get?
Unintended consequences?
We tax interest accrued for savings, but now propose to deduct debt interest??? This is so backward.
When you tax something, you discourage it. When you exempt something, you encourage it. Do we want people to forego saving money and instead take out more debt? Insane.
Bertel Schmitt,
I don’t believe that deduction on car payment or mortgage lead to bank crisis. The crisis was driven by the fact that banks don’t make profit on savings side of equation and actually cash in the bank is reported as liability on P&L statement. Once loans become the driver for bonus of a clerk and president of the bank – the problem will arise. Helping hand was decision or delusion to abolish in principal 36% rule that would require lander not to provide loans for someone who can ill afford paying those loans
@Casual Observer:
Do we want people to forego saving money and instead take out more debt? Insane.
Actually, I think that’s exactly what our beloved ruling class would like. It seems insane to me also (spending one’s way out of debt seems unlikely in my mind, but what do I know?)…
As was pointed out above, this isn’t even worth that much to an individual buyer. At some point, amongst all these bailout, loans and tax weirdness, doesn’t it become cheaper just to let them go into bankruptcy?
-S5
When I was growing up, all consumer interest payments were tax deductible. At some point the rules were changed to only make interest on home mortgages deductible, but that included deductions for lines of credit and other similar means of pulling equity out of homes. Why a loan secured by your house creates a tax deduction while a loan secured by your car does not is actually rather mysterious …. until you consider the influence of the real estate lobby. Real estate enjoys a host of special tax favors unlike just about any other class of spending/investment. Why are capital gains on a home non-taxable (up to $500k/family) while capital gains on building and then selling off a business are not? Why can appreciation in an investment property be rolled over tax free into different investment properties while the same isn’t true for any other investment class?
There are even special tax breaks for “real estate professionals”.
I think we should either eliminate the tax deductability of all consumer debt related interest or else give the deduction for any and all consumer debt interest. Oddly enough, interest earned on any consumer savings is of course taxed at the highest possible rates.
John,
Why worry about deductions at all. The whole idea of taxing incomes is completely ridiculous. Whenever you tax something, you reduce the frequency of it. Why tax production at all?
I concur with Landcrusher. Russia enjoys tremendous growth propelled in part by oil revenue, but also by very progressive tax code. They implemented Steve Forbes proposal of consumption tax. The maximum wage tax I believe 13%. It does not make any sense to cheat tax man for a mere 13%, ergo coffers are full and population enjoys KGB version of capitalism.
I think it is Obama’s plan, minus capitalism part.
Yay! Another discussion about taxes and Obama as a “socialist”. How about watching the election instead?
@autonut: are you serious, or sarcastic? It’s hard to tell. Russia IS indeed an example of uncontrolled capitalism, and well, the result is not exactly thrilling. It certainly doesn’t help that state institutions are corrupt and autocratic, but since Greenspan has finally proven that his mentor Ayn Rand was wrong all along because she forgot one essential variable, human selfish short-sightedness, nothing proves that less taxes will equate to a better government.
Oh, and our dear finance leaders are well positioned to prove that income does not equal production, at least of any meaningful quality. Otherwise, they would have taken good decisions, wouldn’t they have?
@AKM,
I don’t know what papers you are reading, but there is nothing uncontrolled in Putin’s Russia.
Lesser taxes will not equate a better government, since government is made of people, but less of bureaucrats will minimize “human selfish short-sightedness” administered on US, the taxpayers.
I think I have a better idea what I would like to do with my money then bureaucrat on any level of government (federal, state, local).
Even if don’t make “good decisions” with my money, those decisions I choose to make and willing to take responsibility for my actions. I don’t need “dear leader(s)” to guide me.
In conclusion, I am not sarcastic, but rather sardonic.
I hope that I did not offend anyone in a “civilian national security force”
http://www.youtube.com/watch?v=ZEnNYN8sKbQ
I don’t want to spend days of my life in concentration camp, my grandparents told me it was highly uncomfortable.
I would have gotten a deduction on the taxes I didn’t pay.
Of course Toyota wants it, whose cars do you think everyone is going to buy?
You cannot give a break to the guys at the bottom…Have you all learned NOTHING from the current events of the last two months ?
It has always made no sense that there’s a great lease deduction but a garbage deduction for purchase, unless you get a car with GVWR over 6k lbs.
it would not help with chrysler market share.
Sure why not? The government policy subsidizing and encouraging ever more MORTGAGE DEBT has worked out REAL freaking well for all concerned; I can’t really see any problems.
@speedlaw: Exactly. I vaguely remember my CPA telling me that my then U.S. business was to lease all vehicles for a tax break unless I wanted to buy a really HUGE AND HEAVY BEHEMOTH which enjoyed special breaks (in addition to special brakes.)
I trust my CPA, did as he said, and never delved in the details. What was/is that about? A guzzler relief act?
Yeah, let’s go ahead and encourage more reckless borrowing. Great plan there.