Stimulus offers tax breaks on car purchases

WASHINGTON — Consumers are expected to receive a tax break for the purchase of a new car this year but it might not have much impact on the steep decline in auto sales.

The $787 billion economic stimulus, which Congress was considering Friday, would give consumers a state sales tax and excise tax deduction on new cars purchased before the end of 2009. Many new car buyers could see savings of hundreds of dollars in next year's tax filing.

The incentives, worth $1.68 billion, were designed to boost auto sales and increase traffic in dealer showrooms during a dark period for the industry. General Motors Corp. and Chrysler LLC are living off of billions of dollars in government loans and must convince the Obama administration that they can emerge as viable companies.

"No matter how much government aid we give to the Big Three automakers, they can't survive if consumers don't start buying cars," said Sen. Barbara Mikulski, D-Md., who sponsored the legislation.

A car buyer's savings will vary depending on financing terms, state and local sales tax rates and the buyer's income. Mikulski's office estimated a family with an income of $250,000 a year would save about $600 on a new $35,000 car.

Dealers say they will use the tax deduction as a selling point, but they don't see it as a major boost to sales, which fell 37 percent in January compared to the previous year, dropping to the lowest levels in nearly three decades. In January, Chrysler's U.S. sales dropped 55 percent and General Motors saw U.S. sales fall 49 percent.