US Congress scales back vehicle tax breaks

Car dealers and their allies had sought to make interest on car loans and the sales and excise taxes on new-vehicle purchases deductible from federal taxes, with proponents saying these 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 having been dropped.

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

Essentially this now puts estimates on the cash saving from buying a new family car at only US$300 - down from US$600 - which according to Wade Newton, a spokesman for the Alliance of Automobile Manufacturers, is not enough to get consumers interested in buying vehicles. He said he expects industry groups to look for other legislation to accomplish that goal.

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

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.