The auto industry has snared a small spot in the Senate’s economic stimulus bill.
Lawmakers added an $11 billion amendment yesterday to the $900-billion package that calls for a temporary tax break for new-car buyers. The amendment, proposed by Sen. Barbara Mikulski (D-Md.), is meant to spur showroom traffic and ultimately boost car sales.
Here’s how it would work: Anyone who buys a car beginning Nov. 12, 2008, through yearend 2009 is eligible to claim a tax deduction for the sales tax and any loan interest. There are two caveats: The vehicle must cost less than $49,500 and the car buyer must earn less than $250,000.
The bottom line: The tax break should save car buyers $1,500 on a $25,000 vehicle.
Is $1,500 enough to jumpstart vehicle sales? I doubt it, especially considering that manufacturer incentives averaged $2,700 in January, according to Edmunds.com, and still vehicle sales tanked.
Don’t get me wrong, I’m all in favor of ideas to get vehicle sales moving again. But in my estimation, it’s just going to take time.
No help if you live in a state without a sales tax. Great if you live in Manhattan.
And at 4% per annum (that’s what my bank credit line charges) the interest deduction isn’t very big for some purchasers. You get more if you know how to shop incentives.
I agree with Marcie that we shouldn’t expect much impact: if current high discounts aren’t moving the metal, this size increment won’t do much. But some of our people on the Hill can claim they’ve helped the industry….
mike smitka
I think it’s a case of trying to make an impact without fully understanding the situation. In other words, with mortgages, tax-deductible interest is a big deal. But if you want to just translate that to auto loans in the hopes of a similar size impact, it just doesn’t work.
I am wondering how this happened given the taxpayer’s investment in both GM and GMAC/Ally.