Donald Trump and Kamala Harris are in a bidding war for votes, and it isn’t pretty. After the Vice President pitched a Medicare home healthcare entitlement, Mr. Trump countered by pitching a tax break for auto loans and U.S. citizens overseas. If he wins, Mr. Trump may regret these tax favors.
“We will make interest on car loans fully deductible,” Mr. Trump vowed at a rally in Detroit on Thursday. “This will stimulate massive domestic auto production and make car ownership dramatically more affordable for millions and millions of working American families.” This is the fanciful economics typical of Democrats.
Mr. Trump is trying to woo auto workers harmed by inflation and the Biden Administration’s electric-vehicle mandate. Higher car prices and interest rates are crimping sales. Car makers are laying off workers and cutting shifts amid slowing demand. They also need to cut costs to finance increasing EV production to meet government mandates.
A tax deduction for auto interest could reduce the cost of buying a car and boost demand in the short term. But it would also fuel higher prices and make cars less affordable over time. This is what has happened with the mortgage interest deduction. It’s another tax subsidy for debt and consumption, which the economy doesn’t need.
More debt could increase defaults. Auto loan delinquencies are the highest since 2010 because consumers have taken out more debt than they can sustain. The subsidy would also benefit a specific politically favored industry, like Mr. Biden’s green-energy tax credits.
Although not as costly as Mr. Trump’s proposed tax exemptions for overtime pay ($680 billion to $3.1 trillion) or Social Security ($1.6-$1.8 trillion), the auto loan carve-out would still make it harder to finance the extension of his 2017 tax reform. Ditto his promise this week to end what he called the “double taxation” of Americans working abroad.
Americans abroad aren’t double taxed now since they receive a credit against the foreign taxes they pay. Exempting the difference would encourage more professionals to work abroad and companies to expand offices in low-tax countries like Singapore, where employment income for nonresidents is taxed at a flat 15% rate.
The larger problem is that Mr. Trump’s proposals would make a hash of the tax code and can’t possibly be paid for while also extending the provisions from his pro-growth 2017 provisions that expire next year. These include the lower marginal rates, larger standard deduction, 20% pass-through business deduction and doubled estate-tax exemption.
Mr. Trump is setting voters up for broken promises and maybe higher tax rates, which Democrats will demand to pay for his tax giveaways. That’s more likely if he wins and Democrats control one or both chambers of Congress. But even Republicans will be hard pressed to pay for his sops without junking parts of his 2017 reform.
No matter who wins, this could end up being the most expensive election in history for American taxpayers.
