Wednesday, February 04, 2009

I don't think this adds up

The Senate has decided to make the interest on certain auto loans tax deductible—now that's a blast from the past! According to Tax Analysts ($) the provision would be coupled a new deduction for state sales or excise taxes on new car purchases. The write-up makes it clear that the interest deduction will be "above the line," but is silent on the sales tax treatment, which I think is much more important. The tax break applies to this year only (and for some reason reaches back to purchases after November 12, 2008.)

What really caught my eye was the "tax cost" of the provisions: $11 billion. That seems awfully high to me, given today's low interest rates. I'd love to see their methodology sometime.

I haven't blogged about H.R. 1, the American Recovery and Reinvestment Act of 2009, because the tax provisions are surprisingly weak. A huge percentage of the "tax cut" is just another one-year patch to the AMT. I wonder that someone doesn't call politicians out on the hypocrisy of declaring every year that maintaining the status quo for one more year is a $70 billion middle class tax cut.

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