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New Car Tax Break Shrinks

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By MARTIN ZIMMERMAN

Los Angeles Times

Published: February 14, 2009

Congress downsized a tax break for new car buyers.

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

However, the compromise worked out between 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 $300 to $600 on a new car, according to a written statement from Sen. Barbara Mikulski, D-Md., who sponsored the original tax break. Mikulski had said her original version would have saved $1,500 on a $25,000 buy.

Thanks to a late push by lawmakers, motorcycles and other recreational vehicles also are eligible for the tax break. That added about $100 million to the cost of the tax break, according to calculations based on revenue estimates by the congressional Joint Committee on Taxation.

According to Automotive News, the tax break was scaled back to appease lawmakers concerned about the high cost of the $790 billion stimulus package. Trimming the interest deduction from Mikulski's proposal cut the cost of the tax break from $11 billion to $2 billion.

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