Former President Donald Trump unveiled new elements of his tax plan this week, introducing two proposed deductions aimed at garnering support from undecided voters ahead of the upcoming election, anticipated to be one of the closest in history.
In his latest effort to attract voters, Trump, the Republican nominee, announced on Thursday his intention to eliminate “double taxation” for Americans living abroad. In a video message, Trump appealed to expatriates, urging them to register and vote. “To all my fellow Americans living abroad, I need you to join me right now in saving our country. Our country is in very serious trouble,” he stated. “I’m going to take very good care of you. … I’m going to end double taxation on our overseas citizens.”
Later that day, speaking at the Detroit Economic Club, Trump proposed making interest on car loans “fully deductible” if he is elected. “When we do all of this, you will witness nothing less than the launch of a new American industrial revolution,” he declared. “I will keep your taxes low and your job numbers high.”
Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics, noted that the proposal to end double taxation is likely to be well-received by many Americans abroad but cautioned that such promises require congressional approval. “To do this, you have to get congressional approval. This is not something the president can do by executive order,” he explained. “All these tax proposals have to get enacted by Congress, and it’s very hard to get tax legislation of any kind – either increasing or decreasing taxes – through.”
Understanding Double Taxation
Double taxation occurs when Americans living abroad are required to pay income taxes twice – once to the country of residence and again to the U.S. Various provisions can mitigate this effect, such as the foreign earned income exclusion, which exempts up to $126,500 of foreign earnings in 2024, according to Garrett Watson, a senior policy analyst at the Tax Foundation. Additionally, foreign tax credits can reduce the amount of U.S. tax owed, provided the foreign country has a tax treaty with the U.S.
Despite these measures, complexities in applying for tax credits often lead to underreporting or tax avoidance, with less than half of Americans abroad filing their taxes, according to Hufbauer.
Impact of Car Loan Interest Deductions
Trump did not provide extensive details on his proposal to make car loan interest fully deductible but claimed it would make car ownership significantly more affordable. Watson acknowledged the potential benefits of making loan interest deductible but pointed out that the impact would depend on whether the deduction applies to all taxpayers or only itemizers. He noted that a broader deduction would be more beneficial to lower and middle-income earners but also more costly.
If implemented, the deduction would likely benefit the minority of Americans who itemize deductions rather than taking the standard deduction. Watson estimated an average tax saving of about $270 for middle earners if the deduction were universally available. However, given the high cost of vehicles, this saving might not significantly impact overall car affordability.
Revenue Implications of the Proposals
Estimating the fiscal impact of Trump’s proposals remains speculative. However, taxes from Americans living abroad currently generate about $5 billion annually, a figure that could be substantially higher today. Shifting to a residency-based tax system would align the U.S. with international norms and reduce compliance costs for expatriates. Nevertheless, Watson emphasized the need to consider potential tax avoidance behaviors and the overall revenue tradeoffs.
The proposed car loan interest deduction is estimated to cost approximately $5.3 billion in 2025.
These proposals, while potentially appealing to specific voter demographics, face significant legislative hurdles and complex economic implications.
