I have gotten one of those chain emails purporting to show that the CARS program (cash-for-clunkers) actually costs you more money than you save if your car had some trade in value. The email is based on a false premise, that the credit is taxable. It is not. According to the CARS.GOV web site (here),
The CARS Act expressly provides that the credit is not income for the consumer.
Also, for 2009, the sales taxes on a new car purchase are tax deductible.