By David Lightman
The Modesto Bee
(TNS)
If you borrow money to buy a car that was made in this country, President Donald Trump wants you to be able to deduct the interest on the loan.
The White House hasn’t provided any details of how the tax break would work, but Trump touted it during the 2024 campaign and reiterated his support last month.
It’s one of several potential tax breaks House Republicans are considering as they begin what’s expected to be a lengthy, tense process of approving budget and tax legislation. The House Ways and Means Committee will go first, with the aim of passing legislation by Memorial Day. Then the Senate will weigh in.
Trump has proposed several federal tax breaks, including ending taxation of Social Security benefits. He also wants to eliminate the federal income tax on tips and overtime pay.
Trump wants the auto loan interest excluded from federal taxation, and Sen. Bernie Moreno, R- Ohio, who ran several car dealerships, is sponsoring legislation to allow the deduction for all taxpayers, whether or not they itemize deductions on their federal income tax returns.
“Absolutely this will make buying a car less expensive,” Moreno told The Bee.
Concerns about the idea
Democrats and many economists have two big concerns about all this.
“Anything that would help ease the financial burden on people is worth considering, but it is unclear just how impactful this deduction would be,” said Matt Schulz, chief consumer finance analyst at LendingTree, which tracks interest rates.
First, if the deduction is included as an itemized deduction, higher-earning taxpayers would be the big beneficiaries.
The Tax Policy Center has estimated that in the tax year 2020, about two-thirds of tax returns with adjusted gross income of more than $500,000 itemized deductions.
The percentage dropped to 11% for returns with AGI between $50,000 and $100,000. The figure then drops to 4% or less for lower income.
LendingTree’s Schulz figured that if someone took out a $50,000 auto loan for six years and a 7% annual percentage rate, they would pay about $11,000 in interest during that period if they made regular payments.
The most they are likely to pay in any year is about $3,000.
“That’s obviously a significant amount of money for most families. However, given that the standard deduction is more than $29,000 for married people filing jointly and nearly $15,000 for single people, that $3,000 (subtracted from income) won’t be enough for many families to be spurred to itemize,” Schulz said.
However, the suggestion is that this would be allowed as a non-itemized deduction. so all taxpayers would qualify.
Can the government afford it?
The second issue is whether a Congress already struggling to rein in growing budget deficits will accept tax breaks.
“The question is by what process are they going to do all this … these are enormous sums,” said Sen. Ron Wyden, D- Oregon, top Democrat on the tax-writing Senate Finance Committee.
The Tax Foundation estimates the break would reduce federal government revenue by $61 billion over 10 years. While that’s a smaller number than the projected cost of other tax cuts, lawmakers are looking hard at ways to get the price tag down on a tax package.
Lawmakers have other concerns. Trump is trying to spur domestic auto manufacturing, and he has proposed tariffs on foreign goods. Tariffs on foreign auto parts were to go into effect Saturday, though Trump is allowing some reimbursement for car manufacturers if the car is made domestically.
It’s questionable whether that would offset any tariff-driven price increases.
The average monthly payment on a new car loan in the last three months of last year was $742. The average monthly payment on a used car was $525, according to Experian, the global data and technology company.
The tariffs are still expected to drive up car prices. Deducting auto loan interest would save consumers an average of $270 a year if anyone could deduct the interest, said Garrett Watson, director of policy analysis at the Tax Foundation.
Independent analysts see higher prices from the tariffs. “The cost is still substantial for most American cars and trucks. We do not expect consumers to absorb tariff costs that are still above $4,000 for many models, and above $10,000 for luxury vehicles imported from Europe and Asia,” said Patrick Anderson, lead author of a study released Thursday by the Anderson Economic Group.
Moreno said the rate break would help consumers find less expensive cars. He said the break could be paid for by doing away with subsidies for electric vehicles and other measures.
Deducting interest, he said, “is a way you can lower the cost.”
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© 2025 The Modesto Bee (Modesto, Calif.). Visit www.modbee.com. Distributed by Tribune Content Agency LLC.
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