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Senate adds tax cut for new car buyers to stimulus

WASHINGTON — Maybe a tax break cutting the cost of a new car by $1,500 or more will lure customers into showrooms.

The Senate hopes so, adding the plan to a $900 billion package of tax cuts, benefit increases and government projects aimed at finding jobs for Americans and getting them to start spending again.

Interest payments and sales taxes on new autos would become tax deductible under a measure approved. A bill passed by the House does not have a tax break for new car purchases, but the final package that Congress hopes to send President Barack Obama later this month might.

The $11 billion tax break would apply to new cars purchased from November 2008 to through 2009. Individuals with incomes under $125,000 and couples making less than $250,000 would be eligible, regardless of whether they itemize their deductions.

"If you buy a car, someone's got to make them, someone's got to sell them, someone has to service them and someone has to provide administrative services," said Sen. Barbara Mikulski, D-Md., who wrote the measure. "So this amendment is good for the manufacturers, the dealers, the suppliers and the consumers."

U.S. auto sales plunged for every major automaker in January. Chrysler's U.S. vehicle sales tumbled 55 percent, while General Motors' dropped 49 percent and Ford's decreased 40 percent.

Savings from the tax break would vary depending on financing terms, state and local sales tax rates and the income of the buyer. For example, a new-car buyer could save about $1,500 when purchasing a $25,000 car, according to calculations released by Mikulski's office. Someone buying a $35,000 car could save $2,500. Car buyers would get the savings when they file their 2009 taxes next year. Savings would be less in states with no sales taxes.

For luxury cars, the sales tax deduction would apply only to the first $49,500 of the purchase price. The interest deduction would apply only to interest on the first $49,500 borrowed.

The provision was backed by the National Automobile Dealers Association, which said increased auto sales would send a ripple through the economy.