Congress Discussing Tax Incentives for Auto Industry
With two of the three largest domestic automakers on federal loan life-blood and the other suffering record losses, Washington is giving serious consideration to devising tax incentives that will spur new car sales. Two ideas have come out as the front-runners for implementation: a deduction for new car loans, and a cash-for-clunkers program.
The first plan, introduced by Senator Barbara Mikulski (D-MD) and Representative Bill Pascrell (D-NJ), would institute an “above the line” deduction (meaning even tax filers who don’t itemize deductions would still benefit) for auto loans of up to $49,500. Car buyers borrowing more than that amount would still be able to deduct interest and sales tax on the first $49,000. Individuals making more than $150,000 and families making more than $250,000 would not be eligible for the benefits.
The second idea is officially known as “fleet modernization”. Introduced by Senator Dianna Feinstein (D-CA), the plan would give owners of older cars vouchers worth thousands of dollars toward the purchase of newer, more fuel efficient vehicles. Dealers would have to guarantee that the trade-in would be scrapped, not resold, in order for the customer to get the cash. The car’s VIN would then be tracked to make sure it was never resold.
So far, the second plan has gained traction because of its appeal to both the auto industry and environmentalists. Fleet modernization ensures two things: new car buyers purchase more fuel efficient cars, and used cars don’t flood the market, reducing trade-in values for new car buyers. According to a spokesman from Feinstein’s office, her plan could save up to 80,000 barrels of oil a day.
Source: CNN Money