In the realm of ideas to aid the auto industry, Congress ought to consider reinstating a tax deduction for interest paid on consumer loans -- but tailor it to boost the sale of domestically built vehicles. This idea was suggested recently by a Free Press reader, and U.S. Sen. Debbie Stabenow of Michigan, who sits on the finance committee that handles tax legislation, said last week she has asked the staff to look into the possibility.

We want to look at a whole range of possibilities, and this is an interesting suggestion," Stabenow said

Income tax deductions for interest paid on installment loans and even credit cards were phased out from 1986-91 under the Tax Reform Act of 1986. The same law lowered tax rates, increased standard deductions, and made other changes that prompted Congress to scrap the longtime interest deduction for everything except home mortgages.

With too many U.S. households now drowning in credit card debt, Congress obviously does not want to enact tax policies that encourage more such spending. However, the auto industry in particular, but other "durable goods" makers as well, could benefit from a restoration of interest deductions for, say, any consumer purchase on credit greater than, say, $2,000 or $3,000 for a single item that is 80% American made, parts and labor. The definitions could be adjusted, but that's the idea

For a car buyer, the savings involved just might be the difference between an American or foreign model. Think of it as an incentive program from your Uncle Sam, the "buy American" guy.

Sources:http://www.freep.com/article/20081026