As we enter the final days of the 2024 election cycle, the presidential campaigns are making their final pitches to voters. Former president Donald Trump's latest tax proposal sounds like good politics, but it also suggests no deeper economic message than wanting to get elected.
"We will make interest on car loans fully deductible," Trump said in a speech to the Detroit Economic Club on Thursday. "This will stimulate massive domestic auto production and make car ownership dramatically more affordable for millions and millions of working American families."
According to CNBC's Elizabeth Gravier, the average new car owner can expect to pay around $4,450 in loan interest over six years, while the average used car will cost its owner about $5,833 in loan interest over five years.
But tax filers would likely have to itemize their deductions—and 90 percent of taxpayers simply take the standard deduction instead of itemizing. For tax year 2024, the standard deduction is $29,200 for married couples and $14,600 for individuals, meaning any taxpayer who hopes to take advantage of Trump's proposed car loan interest break would necessarily have a significant amount of other deductions, like mortgage interest and real estate property taxes.
So while making car loans tax deductible makes little sense as economic policy, it makes perfect sense when you consider the audience: Detroit, home of America's auto industry. (After making the announcement, Trump even asked the crowd, "Who likes that idea?", as if to make sure it landed.)
Auto dealership owners also make up a significant segment of the Republican base: "Auto dealers are one of the five most common professions among the top 0.1 percent of American earners," wrote Slate's Alexander Sammon in 2023. "They're also one of the most organized political factions…and donate to Republicans at a rate of 6-to-1."
The car loan proposal is the latest in a series of seemingly random tax proposals the former president has floated in recent months. Taken as a whole, it appears that Trump's economic policy is largely based on pandering to whichever crowd he's in front of.
"For those hotel workers people that get tips, you're gonna be very happy, because when I get to office, we are going to not charge taxes on tips," Trump told a crowd in Nevada all the way back in June. The Associated Press noted that "Nevada has the highest concentration of tipped workers in the country, with about 25.8 waiters and waitresses per 1,000 jobs." The proposal soon became Republican orthodoxy, included in the party platform and in legislation proposed by Republicans in the Senate.
In an all-caps post on Truth Social in July, Trump declared that "Seniors should not pay tax on Social Security!" At a Tucson campaign rally in September, he further pledged, "we will end all taxes on overtime" pay. And Trump has also proposed eliminating the cap on the amount of state and local taxes (SALT) that can be deducted on one's federal income taxes—a cap instituted by his own tax law, whose repeal benefits wealthier taxpayers.
On net, paying lower and fewer taxes is a good thing: It lets Americans keep more of their money and gives the government less power to do whatever it pleases. But at the same time, the nation faces mounting national debt—nearly $35.7 trillion, as of this writing. And while Trump has proposed numerous tax cuts, he has proposed strikingly few spending cuts, thereby ensuring our debt will only continue to spiral out of control.
Without giving examples of any specific programs, Trump advocated creating "a government efficiency commission tasked with conducting a complete financial and performance audit of the entire federal government and making recommendations for drastic reforms," with Tesla CEO Elon Musk in charge. "We will fully eliminate fraud and improper payments within six months," Trump pledged. "This will save trillions of dollars…for the same service you have right now."
But Trump has also vowed not to cut Social Security or Medicare, two of the biggest drivers of federal debt. Over the next 75 years, the U.S. faces $73 trillion in unfunded liabilities, all of which come from those two programs.
Trump has also said he would pay for his tax cuts with his plan to slap a universal baseline 10 percent (or possibly 20 percent) tariff on all imports, with a 60 percent baseline tariff on goods from China. "Ultimately, we can break it even, and it's going to generate tremendous growth," Trump told Las Vegas' ABC13, wherein he also said tariff is "the most beautiful word there is."
But putting aside that these tariffs would be paid by American consumers, it's inconceivable to think he could fund his whole grab bag of pandering tax cuts with tariffs.
This week, the Committee for a Responsible Federal Budget estimated that Trump's proposals, if enacted, would increase federal deficits by $7.5 trillion over 10 years—raising spending by $10.2 trillion while taking in $3.7 trillion in revenue. But that analysis includes $2.7 trillion in revenue from tariffs—a figure the report notes "does not incorporate macrodynamic effects of tariffs on the overall economy….Due to the novelty of this policy, the true economic impact is hard to predict."
"Trump's proposed tariffs threaten to offset the economic benefits of his proposed tax policy changes, while falling short of offsetting the tax revenue losses," Tax Foundation economist Erica York wrote in September. "Trump's combination of policies could therefore shrink economic output and grow the national debt."
Meanwhile, the Peterson Institute for International Economics estimated in August that Trump's 10 percent tariff proposal would cost the average American household an extra $1,700 per year—or up to $2,600 with 20 percent tariffs.
Certainly, there are positive aspects of Trump's proposals: Lowering people's taxes, as a general rule, is a laudable goal. But any economic policy should be undertaken with great care and consideration. Trump's proposals, on the other hand, are more akin to throwing spaghetti at the wall and seeing what sticks.
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