Trump tariff push comes with proposal to make car loan payments tax-deductible – Washington Examiner
Former President donald Trump is proposing a tax deduction for interest paid on auto loans for domestically manufactured vehicles as part of his tariff strategy, which includes imposing a 25% tariff on imported cars and components. This proposal aims to offset potential price increases in car purchases due to the tariffs, although Trump does not explicitly connect the two. Initially suggested during his 2016 campaign, the idea resurfaced recently, gaining attention amid ongoing discussions about economic policies. The proposal’s financial implications are still unclear, with estimates of it’s cost ranging substantially depending on whether it is implemented as an itemized or an above-the-line deduction. Critics warn that tariffs could lead to higher prices for consumers, while supporters argue they will bolster domestic auto production.The legislative push for the tax deduction could be tied to broader Republican efforts to extend tax provisions from the 2017 Tax cuts and Jobs Act.
Trump tariff push comes with proposal to make car loan payments tax-deductible
President Donald Trump’s tariffs plan is likely to create some price hikes, at least in the short term. Car prices are among the most prominent items likely to become more expensive, so Trump is also proposing that taxpayers be able to deduct interest payments on auto loans for domestic cars.
To be sure, Trump is not making an explicit linkage between looming car price hikes and the car loan idea. But even left unsaid, it could be an economic spoonful of sugar to help the medicine (tariffs) go down.
Trump originally pitched the proposal while campaigning for president in Michigan last year. At the time, he said he intended to make interest paid on car loans fully deductible. But as the months passed, that particular tax proposal didn’t get so much attention. Other ideas, such as eliminating taxes on tips, got more playtime.
Fast forward to today, and the idea is back in the headlines. Trump mentioned the proposal briefly during his address to a joint session of Congress and even more recently said he discussed it with Senate Majority Leader John Thune (R-SD) and House Speaker Mike Johnson (R-LA).
“If you buy a car in the United States that is made in the United States, if it’s manufactured here, if you borrow money, you have interest payments — we’re going to let you deduct the interest payment for income tax reasons,” Trump said.
Notably, Trump is now emphasizing that the tax perk will be only available to cars made in the U.S.
The idea has also gained some attention because of Trump’s recent announcement about higher tariffs on imported vehicles and vehicle components.
Andrew Lautz is an associate director for the Bipartisan Policy Center’s economic policy program. He said he expects a lot of news and discourse in the weeks and months ahead about tariffs and their impact on the auto industry.
“It certainly makes sense that this idea from the campaign trail is going to be kind of back in the conversation,” Lautz told the Washington Examiner.
Trump said he would impose 25% tariffs on all automobiles coming into the U.S. White House officials envision this as a way to boost domestic auto production, but critics argue that it will only hurt consumers by making it more expensive to purchase cars. Additionally, some foreign automobile components will also face tariffs, according to the White House.
During an interview, Trump dismissed concerns about foreign automakers raising prices in response to the tariffs.
“The message is ‘Congratulations, if you make your car in the United States, you’re going to make a lot of money,’” he told NBC News. “’If you don’t, you’re going to have to probably come to the United States because if you make your car in the United States, there is no tariff.’”
The legislative vehicle for deducting interest payments for auto loans would presumably come as part of the Republican effort to extend or make permanent expiring provisions of Trump’s 2017 Tax Cuts and Jobs Act.
Several major tax provisions in the TCJA are set to expire next year, and a big majority of people would see a net tax increase if new legislation isn’t signed into law. Republicans intend to pass this major fiscal overhaul through budget reconciliation, a legislative process that allows for bills to bypass the filibuster and pass with only a simple majority in the Senate.
The White House unveiled its list of tax priorities about a month ago. Among them are eliminating taxes on tips, ending taxes on Social Security, eliminating taxes on overtime pay, adjusting the state and local tax deduction cap, removing special tax breaks for billionaire sports team owners, closing the carried interest tax deduction “loophole,” and introducing tax cuts for made-in-America products.
Ryan Young, a senior economist at the Competitive Enterprise Institute, which generally opposes tariffs, said imposing 25% tariffs on foreign vehicles and components will undoubtedly raise the price of cars.
“They’re going to raise prices,” Young told the Washington Examiner. “So I think the tax deduction idea on auto loan interest is a way to offset some of those higher costs.”
It is hard to exactly game out how much Trump’s auto loan interest deduction proposal would cost or how many consumers it might affect, given that so many questions remain about the policy.
“Maybe it could, on some small margin, help with certain people buying new loans on financing,” Tax Foundation senior policy analyst Garrett Watson told the Washington Examiner. He said this appears to be a part of the broader effort by Trump to target certain groups of taxpayers, including tipped workers.
However, he said there has been little discussion as to the exact design of the auto loan proposal.
One of the biggest questions for lawmakers is whether to make the policy an itemized deduction or what is known as an above-the-line deduction.
Making it an itemized deduction would only help if taxpayers itemized their taxes rather than taking the standard deduction as most taxpayers do. It would be less of a revenue hit for the government but would affect a much smaller pool of car purchasers. For context, only about 1 in 10 taxpayers itemize their taxes.
An above-the-line deduction would allow pretty much anyone to qualify for the deduction. It would also help many more car buyers but cost more to do, something that is a major consideration as Republicans work to fit many tax-cut priorities into their planned reconciliation package.
While Trump was on the campaign trail, the Tax Foundation found that creating an itemized deduction for auto loan interest would cost an estimated $61 billion in tax revenue over a 10-year window. The Budget Lab at Yale estimated a similar $71 billion figure.
The Budget Lab at Yale found that doing an above-the-line deduction would be much more expensive and would cost an estimated $173 billion over the next decade.
One caveat is that those cost calculations were done looking at auto loan interest across the board, not just for loans for domestically produced vehicles as Trump has more recently suggested. Exempting interest on only American-produced car loans would lower the cost projections and narrow how many people would benefit from the deduction.
Trump’s overall tariff agenda has rankled the markets and driven further concern about inflation, which is still running above the Federal Reserve’s 2% goal.
TAX RECKONING COMING FOR BESIEGED UNIVERSITIES AT HANDS OF GOP
While Trump campaigned on an aggressive tariff agenda, some on Wall Street may have expected a lot of that rhetoric to be used as a leveraging tactic and that he would not go through with some of the more aggressive ideas. But the imposition of tariffs on allies including Mexico and Canada has proved that Trump is willing to follow through on his tariff threats.
Trump and his allies see tariffs as a way of rebuilding the domestic manufacturing base, even if it means some short-term discomfort.
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