A Democratic senator will push to extend tax credits to car buyers as part of a broad economic stimulus package, aiming to lift vehicle sales out of a precipitous slump.

The proposal would mirror a bill introduced in the Senate in November, a spokeswoman for Sen. Barbara Mikulski, D-Md., a member of the Appropriations Committee, said Monday.

Under that bill, interest payments on car loans would be tax deductible, as would sales and excise taxes on cars. The program would apply to new vehicles purchased through the end of 2009.

With U.S. auto makers reporting dismal December sales figures Monday - closing out their worst year in more than 15 years - auto dealers are preparing to make a push for tax incentives and other forms of government aid. A spokesman for the National Automobile Dealers Association said Monday that tax incentives for consumers would be a top priority of the association in the coming Congress.

"Sen. Mikulski is going to continue to fight to get this included," said Cassie Harvey, a spokeswoman for the senator. She emphasized that talks on the economic stimulus package - expected to focus heavily on tax cuts, infrastructure projects and aid to states - are in the early stages and that details could change.

The U.S. auto industry closed out its worst year in more than 15 years, with General Motors Corp. (GM), Toyota Motor Corp. (TM) and Ford Motor Co. (F) reporting sales declines of more than 30% for December. Chrysler LLC's sales plunged 53%.

Tax credits for car purchases would be a less controversial way of helping the ailing domestic auto industry than the Treasury Department's bailout of GM and Chrysler. Those two companies recently received the first installments of $17.4 billion in low-interest government loans.

"Auto makers are hopeful that any stimulus package will include some mechanism to get consumers back into showrooms," said Wade Newton, a spokesman for the Alliance of Automobile Manufacturers, which represents domestic and foreign car companies. "All of our industry's successes in financial recovery and environmental advancements depend on consumers buying automobiles. With the economy the way it is right now, that's not happening - we're seeing historic lows."

When Mikulski unveiled her tax-credit proposal in November, she emphasized that the credits would apply to vehicles made by domestic and foreign companies, with the intention of not benefitting just Detroit's Big Three auto makers but preserving U.S. jobs in general.

Mikulski estimated that buyers of a $25,000 Dodge minivan would save $1,553 with the credits. The incentives would apply to loans of up to $49,500. Households with incomes above $250,000 wouldn't be eligible.

The estimated cost of the proposal would be between $2 billion and $3 billion, she said then.

-By Josh Mitchell, Dow Jones Newswires; 202-862-6637; joshua.mitchell@dowjones.com

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