New Stimulus Package: Tax Deductions for Car Loans and Sales Tax

Robert Farago
by Robert Farago

The Detroit Free Press reports that Senator Barbara Mikulski (D-MD) has added some car dealer-friendly provisions to the proposed $43g (gazillion) economic stimulus package.

Mikulski’s proposal would grant a tax credit for vehicles bought between Nov. 12 of last year and Dec. 31 of this year. The tax break would only go to families making less than $250,000 a year, and would only apply to interest on loans up to $49,500.

“Everyone wants to save auto manufacturers, but no matter how much government aid we give to the Big Three auto makers, they can’t survive if consumers don’t start buying cars,” Mikulski said.

True dat. HOWEVER, this is like putting a band aid on an arterial wound. Until the U.S. housing market recovers, car sales will not come back. And maybe not even then, for a while anyway. How Congress/the feds do that remains to be seen. Later.

Robert Farago
Robert Farago

More by Robert Farago

Join the conversation
4 of 18 comments
  • GS650G GS650G on Feb 04, 2009

    It's been a long time since car loan interest was tax deductible, at least 20 years. All that was swept away in return for lower rates in the 80's. I never thought it was a good idea to allow someone to pay less federal taxes because they shelled out interest on a car loan. Even the home interest deduction is a bit off. Why should money paid to a bank for a house loan not be subject to income tax? I know it's a sop to the middle class and meant to encourage home ownership. But it increases the burden for others. Reagan hated the deductions for state and local taxes primarily because it encouraged state and local government to raise them. People in low tax areas paid more federal tax as a result. The AMT has clamped down on some of this, imagine paying ridiculous local and state fees only to not be able to deduct any of it. Rude awakening. This proposal to limit it to 250K AGI is a ruse since anyone close to that level is in AMT range anyway.

  • Boston Boston on Feb 04, 2009

    Does anyone know if this applies to leases as well?

  • Mark45 Mark45 on Feb 04, 2009

    Landcrusher wrote: Here is a stimulus idea. End payroll and income taxes. If you stop making it a nightmare to be an employer, more people will hire others. All businesses track sales or they would go out of business from not knowing what they are doing. So, just tax sales. Give every mouth in the country enough money each month to pay the taxes on basic food and shelter, and be done with it. Or, go nutty leftwise and give them enough to PAY for basic food and shelter. It would be cheaper than we are doing now. There is a plan for this, it just needs support. Check out

  • Hazard Hazard on Feb 04, 2009

    Bah, should be lucky it's not the following...I think of all the supposedly democratic free-market oriented countries, Serbia went the farthest this week. I think it trumps all the clunker-trashing incentives seen thus far. The government will give you a ~1000€ subsidy if you have a non-EURO3 compliant vehicle (EURO3 is the current European emissions standard for new vehicles) and decide to replace it with a brand new shiny FIAT Punto 188 (that being the one before the Grande), allowing you to buy it for the low price of 5999€ (retail price minus the subsidy is about 7300€) - but wait, it gets better! If you can't pony up the cash, the government will provide you with a 7-year (!) loan with the favourable interest rate of 4.5% (banks charge 11% for car loans, thereabouts) giving you a new car for about 100€/month (no small sum considering the average net salary is about 400€/month). As an added bonus, you car may fall apart and/or depreciate to a ridiculous sum before you pay it off (7 years!). Why the Punto? It's made by Fiat Serbia, the factory formerly known as Zastava (used to make Yugos). If you're thinking this is less costly than the bailout, the government already pledged a 300 million € investment into the company (which is 70% owned by FIAT of Italy). So, Americans, until Uncle Sam starts giving out cheques and loans for you to buy Toyotas assembled in the US, you can rest in knowing that your government has not gone completely batshit crazy. To add to the insanity described above, the government is thinking of offering this subsidy not only to its own citizens and residents, but to those of neighbouring countries!