Economic stimulus bill includes tax break for car buyers

The IRS would hand you back $1000 or more on a new car purchase this year under a new provision of the Senate's version of the economic stimulus bill. The measure, approved by the Senate on Tuesday, would make auto loan interest and state sales tax deductible from federal income tax.

The provision, approved 71-26 by the Senate, comes at time when U.S. auto sales are at a 27-year low and, for the first time, have fallen to below the number of cars and light trucks sold in China, according to reports by Automotive News. The amendment is not part of the House version of bill. As a result, it will be up for negotiation by a House-Senate conference committee if the Senate approves its version of the stimulus bill.

The measure would apply to individuals with 2009 income of up to $125,000 and families earning up to $250,000 this year. It applies to cars and light trucks costing up to $49,500.

Maryland Democrat Sen. Barbara A. Mikulski, sponsor of the amendment, provided the following examples (pdf) of what the amendment might save you:

• A family earning $250,000, would save about $2,500 on a vehicle costing $35,000, assuming a 48-month loan at 7-percent interest.
• A family making $150,000 a year would save about $1550 on a $25,000 vehicle assuming a 48-month loan at 8-percent interest.
• An individual earning $100,000 would save about $1,460 on a vehicle costing $23,600
• assuming a 60-month loan at 5.5-percent interest.

Opponents of the amendment worry that it will increase consumer debt, considered to be a cause of the current financial crisis, Senate Finance Chairman Max Baucus, a Montana Democrat who voted against the measure said it would cost $11 billion.

"There is much work to do and no time to waste," Mikulski said. "We've already done a bailout. We've helped the sharks and we've helped the whales. Now it's time to help the minnows."

—David Schiff