Ron Paul’s Car Trade-In Tax Credit Plan Promotes Fuel Efficiency

By Justin Gardner | Related entries in Energy, Environment, Gas, Ideas, Legislation, McCain, Oil, Ron Paul

I love this idea…and I would certainly take advantage of it if it becomes law.

The bill is called “The Energy Efficient and Environmentally Friendly Automobile Tax Credit Act of 2008″ and it provides tax credits of up to $2K for people who sell or trade in their car for a model that’s 20% more fuel efficient.

Fort Bend Now also notes some additional ways to save:

The bill also creates a federal tax deduction for any state or local taxes paid on the purchase of the more fuel-efficient automobile and makes interest on loans to purchase the more fuel-efficient automobile tax deductible.

On the flip side, you have McCain proposing tax incentives for car companies to make more fuel efficient vehicles, but if Americans can’t afford these traditionally more expensive autos in the first place, it’s going to hurt adoption rates. That’s why I called it a stunt when he proposed it.

Ultimately, Paul’s bill is meant to help people use less gas, which will drive down gas prices and lessen pollution. One of the fews ways the government can actually help accomplish this is to incent Americans to take action, and I can only imagine that if the car companies were smart, they’d be much more in favor of an idea like this instead of McCain’s.

In any event, well done Mr. Paul. I hope to see this legislation up for consideration in the House soon.

This entry was posted on Thursday, July 10th, 2008 and is filed under Energy, Environment, Gas, Ideas, Legislation, McCain, Oil, Ron Paul. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

18 Responses to “Ron Paul’s Car Trade-In Tax Credit Plan Promotes Fuel Efficiency”

  1. John Says:

    Dear Word Detective: I recently heard an economist on TV say that the government should do more to “incent” American workers. It was clear from the context that she meant “encourage,” but why didn’t she just say that? Is “incent” a new word, and if so, do we really need it? — Emily Scott, via the internet.

    I’ll do just fine without it, thanks. I, too, have heard “incent” several times in the past few years. At first I assumed that my ears were on the fritz, but after the third encounter, I realized that we were witnessing that rarity of the natural world, the birth of a verb. Usually this is an occasion to celebrate, as our language grows in scope and expressiveness. In this case, the feeling was more akin to discovering that I had a flat tire.

  2. Jim S Says:

    I admit to being pleasantly surprised. When thinking of what to write to try and pick back up posting at my blog one of the big things on my mind is that McCain’s award proposal isn’t enough. We need more than new batteries and then for any invention made to mean anything it has to get out into the market.

  3. Tim in Wisconsin Says:

    I’ve got problems with this. While I appreciate that someone is finally talking about demand-side policies, I don’t like the way that Paul goes about doing it. Pauls’ program rewards those who were previously irresponsible and are now feeling the pinch with shiny new cars and tax deductible interest. This is just like mortage bailout programs in which people who didn’t buy houses that they couldn’t afford get nothing while those who overspent would get all kinds of federal help. We shouldn’t be subsidizing shortsightedness.

    Those who are already getting a reasonable 35 mpgs will find it difficult to find a new car that meets the requirements, but if an SUV owner is currently getting 14 mpgs, they will qualify for a new SUV as long as it gets 17 mpg. At the very least, a floor has to be set at 30 mpg or so for the new car in order to be elgible.

    This is just a Band-aid solution that allows us to postpone the day of reckoning for a while. We still have fundamentally flawed cities in which residential, employment, and shopping areas are only accessible by car. We still have a woefully inadequate system of public transportation. We still have a backwards transportation funding system in which the federal government covers 80% of the cost of highway construction and airport construction but only 50% of the cost of rail construction (prior to last year, it was 0% and the feds still have only about $50 million budgeted for rail projects for the whole nation.)

    And I love this quote by Paul: “Providing tax deductions and tax credits to make it easier for Americans to purchase fuel-efficient automobiles is a win for American consumers, a win for the environment, and a win for those of us who favor free market solutions to pollution and high gas prices.” Apparently Ron Paul has a very elastic definition of the free market if it includes federal subsidies for new car purchases.

  4. Tully Says:

    The obvious: Such a program would drive up the price of the vehicles involved while driving down the market price of used vehicles. Not rocket surgery, but Econ 101. A subsidy that increases demand results in an increase in market price of the subsidized good, and a reduction in the market value of similar but unsubsidized goods. Also obvious is that the taxation effect would be income-regressive. IOW, the poor would benefit the least (or be hurt the most, depending) by being the least able to capture and utilize the subsidy, and by having the market value of their existing vehicles decline.

    How that would settle out to the amount of de facto subsidies captured by manufacturers versus that captured by the consumers is debatable, but the net result is higher-priced cars, mostly for the middle-class and up, partially paid for on the taxpayer’s dime.

    The assessment/analytical question is the cost/benefit tradeoff plus the income-regression effect. One suspects the C/B ratio would exceed 1:1.

  5. Chuck Says:

    This is sort of silly. I’m surprised Paul would support this notion of the government (in essence) paying people to do things. The government can stay neutral with regard to how people deal with fuel prices, as far as I’m concerned. They could stop interfering in the fuel market to help prices, but that’s about it. Should we pay people to get more efficient refrigerators, or to put insulation in their hourses? I’m still a Paul fan, but I’m transferring my energies to Bob Barr at this point.

  6. Tully Says:

    BTW: “Incent” is a legitimate (if somewhat ugly) verb back-formation from “incentive” and means to motivate through incentive. Yes, grammarians hate it, but hey, they also hate the word “burgle.” Personally I also find the word “source” used as a verb somewhat ugly. And I’m not all that fond of “dynamic” used as a singular noun.

    But, hey, whatever.

  7. Below The Beltway » Blog Archive » Ron Paul’s Bad Idea Says:

    [...] Donklephant   [...]

  8. Dave Says:

    Last time I checked, tax credits were not subsidies. Subsidies are payments, not credits. Ron Paul looks to reduce the tax burden on Americans wherever he can, and I applaud him for it.

  9. Doug Says:

    Tim wrote -

    “I’ve got problems with this. While I appreciate that someone is finally talking about demand-side policies, I don’t like the way that Paul goes about doing it. Pauls’ program rewards those who were previously irresponsible and are now feeling the pinch with shiny new cars and tax deductible interest. This is just like mortage bailout programs in which people who didn’t buy houses that they couldn’t afford get nothing while those who overspent would get all kinds of federal help. We shouldn’t be subsidizing shortsightedness.”

    This is not subsidizing, subsidizing is giving tax payer money to people , groups or comapnies who it does not belong to. Like when the government pays corn farmers to gorw corn for biofuel.

    Paul has never voted for government subsidzes in his 20 years in office.

    What this bill does is give back the money the government took from these people in the first place.

  10. Duke Says:

    Good job Dave! It seems most of the other commenters are just armchair economists. One even quotes the idea as being Econ 101. What does that make McCain?? Kindergarten econ? As usual Paul is using just good common sense. If the price of old cars goes down, then the poor can at least afford to buy a car, if not operate it very often because of the rising gas prices…At least they now can afford a car! Additionally what Paul’s plan does is stimulate a “surge” of new car buyers and may just be a way to “bail-out GM and Ford without making all of us suffer…Brilliant Paul!

  11. Where did we go today? « Soapbox Spectacle’s Weblog Says:

    [...] and another one [...]

  12. Tully Says:

    Last time I checked, tax credits were not subsidies. Subsidies are payments, not credits.

    Bullshit, Dave. You should check closer. A subsidy is a subsidy whether it’s direct or indirect, and regardless of HOW it’s paid. And tax credit and deductions are indeed subsidies–financial assistance to encourage a specific activity. In this case it’s a direct tax subsidy to purchasers and an indirect transfer subsidy to producers.

    This really is extremely basic Econ.

  13. Matt Says:


    I have to agree with dave here. A tax credit is not a subsidy. If Ron Paul eliminated the IRS and we paid no federal income tax would you be complaining that he was subsidizing americans who worked and earned an income? I doubt it. Dr. Paul realizes that he will probably never see his idealistic form of government in the US. But what he does is to pressure for incremental steps in that direction, whatever he can get, by piggybacking a lower tax on an environmental and gas price issue he has made a brilliant move to limit the money government gets and helping two other problems. Killing three birds with one stone is pretty good in my book. I know he reached god like status in some peoples mind and many people would have him channel Ben Franklin when he writes his bills, but to me he still tries to get things done, and for that he has to make some sacrifices.

  14. Tully Says:

    Then you’re economically illiterate, Matt. (I say that with no rancor at all–most people are.) A goods-targeted tax credit or deduction is indeed a subsidy, by definition, regardless of any ideological rhetoric or attempted ideological re-definitions. You are welcome to your own opinion there, but for the facts I suggest you ask a professional economist. Or just go look up the textbook definition of a subsidy, as I linked. Hey, why believe one source? Here’s another one! And another. And another.

    A goods-or-behavior targeted tax credit or deduction is indeed a government subsidy of that good or behavior. Period. End of story. Whether it’s a good idea or not is a different subject and dependent on your own mileage, but it’s still a subsidy. In this case it’s a direct tax subsidy to purchasers and an indirect transfer subsidy to producers.

    If you feel the textbooks are mistaken as to the standard definition of terms within the field, you are certainly welcome to estabish your own credentials and write your own textbooks. Good luck with that. Let us know how it turns out.

    It’s a never-ending source of amusement to me how the Paulites claim to be for “free markets” without seeming to understand what the hell they actually are.

  15. Szilard Says:


    When someone uses the expression, “Period. End of story.”, he can’t be argued with. You’ve made up your mind and are focusing on literal definitions rather than consider the intent of dialogue. You are very brave and brash in your armchair.
    So i won’t debate the issue with you, I am – after all – just a crazy Paulite.

  16. Szilard Says:

    Isn’t “incentivize” just fine as a word?

  17. Rob The Concerned Says:

    There is a significant difference between tax-credit and subsidy. Remember subsidy is giving money out right. Tax credit is returning money after it is spent. However when does the money get sent back by the ‘consumer’? The idea of the Tax Credit is to give people less taxes on the money they already have rather than GIVE money. Subsidies ALLOW people to buy something they originally could not have by GIVING money.

    To boil it all down, it gives people a greater reason to buy a fuel efficient car over a non-fuel efficient one because one gets taxed less (tax credit). It DOES NOT allow for one to buy a fuel efficient car (subsidy). IE it is an incentive to buy a new efficient car.

    Tim of Winsconsin is right, it does sadly benefit those who haven’t bought efficient cars already over those that have. They, I agree, should set a range that they give tax credit for, not give tax credit for buying a more efficient one over the one they currently have.

    It DOES look like a band-aid fix in one light, but it actually isn’t. It’s an incentive to act better for people. Rather than tell people out right to buy efficient cars, it tells people, hey it is smarter to buy more efficient cars. It is also a means to get the government to take LESS money from the people, supporting the lesser role of the IRS. It also reduces dependency on fuel, which is in turn foreign dependences on energy. It is a very very complicated weave if continued, but in essence supports his theme of ‘smarter consumers’ and ‘less foreign dependency’ amongst others.

    No, Ron Paul is NOT supporting people by PAYING them to buy better cars. Instead he is he saying the government will take LESS money away from you if you buy an efficient car. The subsidy will be the government GIVING money to buy efficient cars.

  18. Expat Says:


    What about if Ron proposed anyone gets a full price Tax break on purchasing a Prius…

    If you were planning on buying a car and wanted a tax free year *if your supposed tax liabilty was 30 thousand dollars,) would you not buy a prius and not pay taxes the same year….

    I WOULD…. I would not call it a subsidy because your children you claim on taxes would be defined as a subsidy also…

    look at the big picture…

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