The program is likely increasing the costs for non-qualifying buyers in the market for a more fuel-efficient car — because dealers can sell to Clunkers buyers for a higher dealer price. But why should someone trading an 18mpg car for a 25mpg car get a $4500 subsidy, while someone trading a 20mpg car for a 30mpg car gets nothing? And why should the 20mpg owner be taxed to subsidize the purchase of a possible competitor?
This is what government does. It takes money from some people and gives it to others for no good reason.
I erroneously posted earlier that someone trading an 18mpg car for a 25mpg car would get a $4500 subsidy, while someone trading a 20mpg car for a 30mpg car would get nothing. Actually, you have to go up 10mpg to get the full $4500. If you go up by 4 to 9mpg, you get $3500. In any case, Clunkers is a subsidy that distorts the market. It raises prices for those that can now be outbid by those they are subsidizing.