Supporters and customers of the cash for clunkers program were not happy and kind of surprised to find out that the government's cash for clunkers program is a taxable income. The program is a government voucher that is not taxable, so people who participate in Cash for Clunkers won't get docked on their taxes for participating. The credit you get for trading in your old car doesn't count towards your 1040. Some members of Congress aren't amused – Congressman Ron Paul (R-TX) has advocated a tax deduction instead of a payment – which is a dandy idea. (He also wants to get rid of the IRS, a GREAT idea!) So take heart – you won't need guaranteed loans for your tax bill if you participated in Cash for Clunkers.