Home > auto, finance, news > New Car Taxes Would Hurt Sales, Cost Jobs

New Car Taxes Would Hurt Sales, Cost Jobs

April 12, 2011|By ART SCHALLER JR., The Hartford Courant

The state faces its greatest budget crisis since 1991, when then-Gov. Lowell P. Weicker Jr. proposed adoption of the state income tax as the solution to Connecticut’s fiancial issues. Twenty years later, we are facing the same basic issue, spending is outstripping the state’s revenue structure. The question is: Can we finally get it right?

Gov. Dannel P. Malloy and our General Assembly have a tough job ahead. They have to balance the budget. We agree with the governor, “Don’t kick the can down the road.” Otherwise, we would have to come back next year and fix a hole in the budget because spending again outpaced faulty revenue estimates. Let’s get it right the first time. Don’t make things worse, however, with deficits and job losses due to poor tax policy.

The proposed new taxes on automobile sales will tax the value of a trade-in vehicle that consumers use for a down payment on a new car, raise the sales tax to 9.25 percent on every dollar more than $50,000 paid for a car or truck and tax coupon price discounts as part of the sale price. Our association’s estimates suggest that these new taxes will actually reduce the state’s tax revenue rather than increase it. These proposals are bad ideas and are not well thought out.

Clearly these tax increases would make Connecticut auto dealers less competitive with our neighboring states. These proposals are shortsighted — and will result in fewer cars being sold and serviced in our state, causing the state to lose approximately $112 million in sales and income taxes and forcing more than 700 layoffs in Connecticut dealerships.

These new taxes equate to losses for Connecticut, not gains. These new taxes will increase the cost of a car loan and force most consumers to come up with more cash to qualify for a car loan. Because New York , Massachusetts and Rhode Island all wisely have avoided these types of taxes, consumers will save more than $1,000 in car payments just by going out of state to purchase a car. The unintended consequences of these new taxes will be to cause a Connecticut consumer credit crisis, killing in-state sales of cars and trucks.

Maine tried this a number of years ago and its legislature quickly came back into special session to repeal the mistaken taxes when revenue plummeted. From 2007 to 2010, auto sales in Connecticut crashed from $9 billion to $6.6 billion largely because of the credit crisis, which drove the cost of car loans up so much that consumers stopped buying. The state lost hundreds of millions of dollars in sales tax, nearly 3,000 jobs in auto retailing and 80 small car dealers went out of business.

Connecticut car taxes mean Connecticut loses. The state loses revenue, the employees who sell and service cars lose their jobs. Connecticut consumers lose by being taxed twice on the same car and by losing affordable credit and car payments.

Let me suggest a solution that works. National economists predict vehicle sales for the U.S. in 2011 will hit more than 12 million, a level not been seen for almost three years due to the recession and tight credit. If Connecticut makes the right decision and leaves the trade-in allowance in place and holds off on imposing a 9.25 percent incremental sales tax on higher priced vehicles, Connecticut new car sales will easily reach pre-recession levels. As sales increase, so will state sales tax revenues — far exceeding the estimated $40 million raised in the budget by these new auto taxes. Let Connecticut dealers sell cars to help balance the budget and preserve jobs and job growth.

Art Schaller Jr. is chairman of the Connecticut Automotive Retailers Association and president of Schaller Auto World.

Categories: auto, finance, news
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