Tax News

CCH (cch.taxgroup.com) reports:

  Following reports that the "Cash for Clunkers" (CARS) program had been suspended because of depleted funds, Congress and the White House on July 31 scrambled to ensure that consumers can continue to buy cars under the program. The House immediately took up and passed a bill (HR 3435) providing an additional $2 billion to keep the program running. The final vote was 316 to 109.

  The additional funds come from a loan guarantee for clean energy included in the American Recovery and Reinvestment Act of 2009 (2009 Recovery Act) (P.L. 111-5) and would extend the program through September 30, 2010. Rep. Edward J. Markey, D-Mass., one of the co-authors of the "Cash for Clunkers" program, said he would push to ensure that the money is replaced in the environmental fund.

  Sen. Carl Levin, D-Mich., said that the program had proven "hugely successful" and that he had been assured by the White House that consumers could continue to purchase vehicles under the program until further notice. Levin said that the Senate is also going to seek additional funds to extend the program. The Senate will likely take up the measure, which would be open to amendments, during the week beginning August 3. However, passage may not be as smooth in the Senate because some senators plan to seek higher fuel-efficiency standards in the deal.

  Sens. Dianne Feinstein, D-Calif., and Susan M. Collins, R-Maine, on July 31 urged the Department of Transportation to promptly provide Congress with a detailed evaluation of the effectiveness of the CARS program. In a letter to Transportation Secretary Ray LaHood, Feinstein and Collins requested a detailed analysis of how the program has worked to date, including the make and model of the vehicles purchased, the fuel efficiency of purchased vehicles, and the condition of vehicles traded-in. "The tremendous number of sales in the first week of this program demonstrates that the CARS Act (Consumer Assistance to Recycle and Save Act of 2009, approved as part of the 2009 Supplemental Appropriations Act for Iraq, Afghanistan, Pakistan and Pandemic Flu (P.L. 111-32) (TAXDAY, 2009/06/25, W.1)) has succeeded in increasing new vehicle sales, but Congress needs this data in order to determine if the fleet modernization program delivered significant fuel economy gains and oil savings," stated the lawmakers.

  President Obama is "enormously pleased" that the House bill proposes to use $2 billion from energy efficiency funds contained in the
2009 Recovery Act, according to White House Press Secretary Robert Gibbs. Gibbs said the CARS program benefits taxpayers because their new cars are more fuel-efficient.

  Obama on June 24 signed legislation to boost the sale of vehicles at financially strapped U.S. automobile dealerships (TAXDAY, 2009/06/25, W.1). The 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, are given to dealers when consumers trade in old vehicles for ones with higher fuel efficiency. The vouchers are considered to be taxable income for the dealers but not the customers who purchase a new vehicle.

  Congress created the new program as part of the CARS Act. Generally, the trade-in vehicle must have a fuel economy value of 18 miles-per-gallon (mpg) or less. The vehicle must be in drivable condition and have been continuously insured and registered in the same owner's name for one year before trade-in. Vehicles manufactured more than 25 years ago generally are ineligible for the program. The new law limits the number of vouchers to one per customer, including joint registered owners of a single eligible trade-in vehicle.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff