Senate votes to give a tax break to new car buyers

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(Agencies)
Updated: 2009-02-04 09:54

WASHINGTON -- The US Senate voted Tuesday to give a tax break to new car buyers, setting aside bipartisan concerns over the size of an economic stimulus bill with a price tag approaching US$900 billion.

The vote was 71-26 to allow many car buyers to claim an income tax deduction for the cost of automobile sales taxes and interest payments on car loans.

Sen. Barbara Mikulski, D-Md., said the plan would aid the beleaguered automobile industry as well as create jobs at a time the US economy is losing them at a rapid rate. "I believe we can help by getting the consumer into the showroom," she said.

The provision was attached to the economic stimulus bill at the heart of US President Barack Obama's economic recovery plan and is subject to change or even elimination as the measure makes its way toward final passage.

Democratic leaders have pledged to have the bill ready for his signature by mid-month.

Earlier in the day, the Senate turned back a proposal to add US$25 billion for public works projects, a rejection engineered by Republicans critical of the bill's size and voicing skepticism of its ability to create jobs.

Democratic leaders conceded they may soon be obliged to cut billions of dollars from the measure. "It goes without saying if it's going to pass in the Senate, it has to be bipartisan," said Sen. Dick Durbin of Illinois, the second-ranking Democratic leader, adding that rank-and-file lawmakers in both parties want the bill's cost reduced.

One Democrat, Sen. Ben Nelson of Nebraska, said he hoped for reductions "in the tens of billions of dollars."

The developments unfolded as more companies announced job layoffs -- including 5,800 at PNC Financial Services Group. In another sign of economic weakness, the Federal Deposit Insurance Corporation predicted the cost of bank failures will exceed its estimate from last fall and urged lawmakers to more than triple the agency's line of credit with the Treasury Department to US$100 billion from the current US$30 billion.

Mikulski's office put the cost of the tax break she sponsored at US$11 billion for one year. It would apply to the first US$49,500 in the price of a new car purchased between last Nov. 12 and Dec. 31, 2009. Individuals with incomes of up to US$125,000 and couples earnings as much as US$250,000 could qualify, including those who do not itemize their deductions.

Sen. Charles Grassley, R-Iowa, sought unsuccessfully to derail the proposal, saying it would only increase consumer debt in a time of recession and adding that there were other provisions in the legislation to help the auto industry. But the 71 votes in support were far more than the 60 needed for passage.

Earlier, the vote to add US$25 billion for new construction on highways, mass transit and water treatment facilities failed 58-38, two short of the 60-vote majority needed for passage.

Sens. Dianne Feinstein, D-Calif., and Patty Murray, D-Wash., argued the increase would quickly translate into jobs.

"Our highways are jammed. People go to work in gridlock," Feinstein said in arguing for the proposal.

But Sen. Jim Inhofe, R-Okla., countered, "We can't add to the size of this bill. ... The amount is just inconceivable to most people."

The stimulus bill remains a work in progress, following last week's party-line vote in the House and an Oval Office meeting on Monday in which Obama and Democratic leaders discussed ways to reach across party lines.

Republicans are expected to seek a vote later in the week on a plan to inject the government into the mortgage industry in an attempt to drive down the cost of mortgages to as low as 4 percent. Democrats treaded carefully on the proposal, saying they would consider it but also claiming the US$300 billion Republicans allocated would not come close to accommodating the demand.