TaxVox A Commissar of Cars
Howard Gleckman
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The debate over bailing out the auto industry is producing a veritable fleet of Pinto-like policy prescriptions. And they get worse by the day.

First, an aide to Barack Obama hints the President-elect is considering an auto czar who'd have the authority to force the industry to retool in return for billions in taxpayer assistance. The Russian image is a good start, but the czar thing may be historically premature. Maybe better to call him the Commissar of Cars.

A government agency to tell automakers what cars to make, how many workers to lay off, what equipment to buy? Obama has to be kidding. Want to see what a great job the U.S. government does building economic infrastructure? Just ask the folks in New Orleans.

Then Marty Feldstein, of all people, writes in The Washington Post that government should impose “fundamental restructuring” on the automakers in return for a bailout. In fairness, Feldstein's first choice would be bankruptcy for these failing companies. But the former top economic adviser to Ronald Reagan does not rule out a bailout and says the government should, among other things, “require the companies to make cars that are fuel efficient and more economically sound.”

Wow. If you think CAFE standards are complicated, imagine the rules that would accompany this baby. Presumably, this Commissar of Cars would require that new Chryslers get x-miles-per-gallon, or that y-percent of the fleet must use a specific technology. And count on it being an obsolete technology that favors some senator's home-state interests.

There is an even bigger problem, of course. The Commissar could make GM build cars that meet these green bureaucratic standards. Sadly, he could not make anyone buy them. Especially if gas prices continue to fall.

Senator Barbara Mikulski (D-Md), knows how to fix that. To address lagging demand, she has proposed a new above-the-line tax deduction for buyers of American-made autos. Anyone making up to $250,000 could take a deduction for sales taxes and the interest on loans of up to $49,500 on a car they buy through 2009.

There is so much wrong with this idea. At a time when people making minimum wage are losing jobs and houses, we are going to subsidize the purchase of $50,000+ cars by people making a quarter of a million dollars a year? I understand that Obama has deemed these folks the new middle class, but are they really the most needy in today's slumping economy? And why do we want to encourage people already saddled by underwater mortgage and credit card debt with even more borrowing? If, that is, they could even get the loans.

It is clear why these bad ideas are busting out all over Washington: Policymakers rightly worry about throwing taxpayer money at failing businesses without doing something more to get them profitable again. But, much as we wish otherwise, government is very bad at doing that. The lesson here seems pretty clear: If we need to tie ourselves into such knots to make an auto bailout work, perhaps we shouldn't do it.

Primary topic Federal Budget and Economy
Research Area Federal Budget and Economy Individual Taxes Campaigns, Proposals, and Reforms