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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.

"Sen. Mikulski is going to continue to fight to get this included," said the spokeswoman, Cassie Harvey. 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.

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 General Motors Corp. (GM) and Chrysler LLC. Those two companies recently received the first installments of $17.4 billion in low-interest government loans.

The auto industry is expected to push hard for the tax credits.

When she unveiled the proposal in November, Mikulski emphasized that the credits would apply to vehicles made by domestic and foreign companies, with the intention of not just benefitting 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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