Congress scales back tax break for car buyers

A proposed tax break for new-vehicle buyers is dramatically scaled back in the final version of the economic stimulus bill.

Auto dealers and their allies had sought to make interest on auto loans and the sales and excise taxes on new-vehicle purchases deductible from federal taxes. Proponents say those measures are needed to boost showroom traffic and sales.

But the final stimulus bill--a compromise between House and Senate negotiators--makes only sales and excise taxes deductible. The loan interest provision was dropped, a spokeswoman for Sen. Barbara Mikulski confirmed on Thursday.

Sources said the trim in the tax break for new-vehicle purchases reduced its cost from about $11 billion to about $2 billion. Congressional negotiators sought to limit the cost of the stimulus bill to pacify lawmakers worried about spending.

Mikulski, D-Md., sponsored the original provision on vehicle purchases at the request of dealers. The spokeswoman said Mikulski considers the deduction for sales and excise taxes an important victory.

In a statement Mikulski estimated that a family buying a new car will cut its federal taxes $300 to $600.

The National Automobile Dealers Association first called for the broader tax break last November. NADA declined to offer an immediate comment on the trimming of the provision.

The stimulus bill now calls for $789 billion in tax cuts and new spending. The House and Senate could vote to approve the bill as soon as Thursday or Friday.

President Barack Obama says the bill is needed to prevent a further collapse of the economy and to create or preserve as many as 4 million jobs.

Wade Newton, a spokesman for the Alliance of Automobile Manufacturers, said Thursday that more must be done to get consumers interested in buying vehicles. He said he expects industry groups to look for other legislation to accomplish that goal.

By Harry Stoffer- Automotive News