A $2 billion tax break that makes the sales tax on most new car purchases deductible through the end of the year will increase auto sales by 94,000 vehicles, a research firm said Friday.
R.L. Polk said it predicted the proposed government incentive — part of a $789 billion stimulus bill expected to pass today — will increase U.S. light vehicle sales by 94,000 in 2009, giving consumers an average rebate of $330 for each new vehicle purchased.
The Senate had originally passed a much larger $11 billion tax break that would have included allowing consumers to deduct the interest paid on new car loans. That would have resulted in an average tax break on a $25,000 new car of $1,500.
The smaller tax break was part of an effort to reduce the overall price tag of the stimulus bill by House and Senate negotiators.
The new car auto sales tax deduction is limited to consumers who have a gross income of $125,000 and $250,000 for couples and applies to new cars of up to $49,500.
Polk analyzed vehicle prices, sales tax rates, registrations by state, and income tax brackets to develop its rebate forecast.
Under the $11 billion plan, Polk estimates the average rebate would have been $1,250 per vehicle, and would have provided a sales boost of 359,000 units in the United States.
“Although the current tax incentive is not as generous as the initial one, it is nevertheless an encouraging measure. This incentive program could be even more successful if coupled with additional steps to boost consumer confidence that would drive more showroom traffic for dealers,” said Lionel Iron, director of consulting & analytics at Polk.
Auto sales fell 37 percent in January.
Western European governments are doing more to spur sales.
In Germany, consumers can receive a rebate of 2,500 Euros — equivalent to $3,200 — if they scrap their old vehicle when buying a new one. According to Polk, this German effort is expected to increase light vehicle sales by 200,000 units for 2009 and should push the German car market just above 3 million.
Various “Cash for Clunkers” proposals were considered in Congress but never added to the stimulus bill, with one offering up to $10,000 rebates on new car sales for trading in a car at least 10 years old.