Congress reduces tax break for new car buyers

A proposed tax break for new car buyers has been downsized by Congress.

The compromise version of the ginormous economic stimulus bill includes a Senate-approved provision that would allow consumers to claim a federal income tax deduction for sales and excise taxes paid on new vehicle purchases.

However, the compromise worked out by House and Senate negotiators deletes a provision that would have made interest on new-vehicle loans deductible as well.

Under the new version, a family could save between $300 and $600 on a new car, according to a statement released by Sen. Barbara Mikulski (D-Md.), who sponsored the original tax break. Mikulski had said her original version (read the details here) would have saved $1,500 on a $25,000 new car purchase.

According to Automotive News, the tax break was scaled back to appease lawmakers concerned about the high cost of the $789-billion stimulus package. Trimming the interest deduction from Mikulski’s proposal cut the cost of the tax break to $2 billion from $11 billion.

Congressional leaders said today they hoped to vote on the stimulus package Friday and send it to President Obama by the Presidents Day holiday Monday.

-- Martin Zimmerman

Buy a car, get a (tax) break

Bad news travels fast in Washington.

On the same day automakers reported their worst January sales in the U.S. in 27 years, the Senate voted to approve a tax break for Americans who take the incredibly bold step of walking into a showroom and — gasp! — buy a new car.

The amendment, brainchild of Sen. Barbara Mikulski (D-Md.), would allow buyers to claim an income tax deduction for the sales tax they pay on a vehicle purchase and for the interest on their loan. The tax break would be available to individuals making up to $125,000 a year and to couples making up to $250,000.

The tax break apparently would be retroactive, covering new vehicles purchased between Nov. 12, 2008, and Dec. 31, 2009, according to Mikulski’s office.

“My amendment is simple,” the senator said in a statement. “If you buy a new passenger car, minivan, or light truck by December 31st of 2009, you will get a tax deduction for your sales or excise tax and the interest on your loan.

“A family would save about $1,500 on a $25,000 car, not counting the additional incentives from dealers.”

Of course, nothing is really simple in our nation’s capital, where even used car dealers are advised to keep a hand on their wallets at all times. As its nomenclature implies, Mikulski’s amendment simply amends the economic stimulus bill now being debated — heatedly, it should be noted — in the Senate.   

Even if that bill makes it through the Senate, the vehicle tax deduction isn’t in the House version of the stimulus package, so a conference committee would have to decide whether it stays or goes.

As Automotive News reported, critics think the tax break is too “delayed action” in nature to do much to help pull the economy out of its current doldrums, not to mention light a spark under the worst car market since what was good for General Motors actually was good for the country.

After all, except for the half a dozen or so folks who actually bought a car during the last six weeks of ’08, the tax break won’t do anyone any good until they start filling out their 2009 tax return — in other words, about a year from now.

-- Martin Zimmerman

Photo: Sen. Barbara Mikulski. Credit: Associated Press

Ford hybrid tax credit: Now you see it, now you don't

Tantalus was a figure in Greek mythology who, for his sins against the gods, was doomed to spend eternity standing in a pool of water below fruit-laden tree branches that moved away from his hand every time he tried to grab a piece of fruit, while every time he stooped for a drink the water receded below his lips.

Ford Motor Co. has recast that myth for modern times, with hybrid lovers in the role of the fallen demigod.

It seems that Ford scored big with its new 2010 Ford Fusion hybrid and 2010 Mercury Milan hybrid. They're so efficient -- at 39 mpg combined city/highway -- that the Internal Revenue Service has approved them for the highest possible level of tax credit for hybrid vehicles: $3,400. That's the same credit it gave to cars like the Toyota Prius and the Honda Civic hybrid and a testament to what a huge leap the Blue Oval is taking in fuel economy.

The problem is that these miraculous testaments to American ingenuity aren't due to hit dealership lots until right around the time that tax credit expires, March 31, or perhaps slightly after that date. That means that environmentally conscious consumers, tempted by the sharp looks and gas-sipping ways of the new mid-sized sedans, will find themselves in the frustrating position of reaching out for that $3,400 tax credit, only to find that it's dropped to $1,700. Hocus-pocus.

That's due to the fact that the IRS program phases out the credits once a car maker surpasses a certain number of hybrid sales (60,000 to be exact). Toyota and Honda long ago broke that threshold, and their vehicles are no longer eligible for any credit at all. But Ford only ...

Tax break for car buyers?

Uncle Sam wants you — to buy a car.

Or at least Barbara Mikulski does. In the latest prescription from Washington on how to revive the U.S. auto industry, the Democratic senator from Maryland  is expected to unveil a proposal today that would provide a tax break on car purchases until the end of next year.

The proposal would provide a federal income-tax deduction for interest payments on car loans and sales and excise taxes on new-car sales. According to the National Automobile Dealers Assn., a typical family would save about $1,500 on a $25,000 minivan.

The dealers association, which says about 700 dealerships will close this year as car sales fall to a 25-year low, says the incentives are necessary to get folks into showrooms and, by extension, help boost the flailing U.S. economy.

“Now is the time for Congress and the White House to implement a stimulus package that is focused on Main Street,” said Annette Sykora, chairwoman of the dealers group.

Not surprisingly, the proposal is a hit with  automakers.

“We are supportive of any incentive that gets the consumer into the showroom, because one of the most pressing elements automakers now face is consumer confidence and consumers struggling to get credit,” said Wade Newton, spokesman for the Alliance of Automobile Manufacturers.

Whether such an incentive will actually provide the sales boost the industry needs is another question, however.