Make Permanent the Deduction for Auto Loan Interest Paid

The One Big Beautiful Bill Act of 2025 created a temporary deduction for auto loan interest paid. The deduction is available to all taxpayers regardless of whether they itemize. It allows a deduction of up to $10,000 per tax return in interest paid on auto loans for new vehicles assembled in the US. The deduction phases out for taxpayers with modified adjusted gross income (MAGI) exceeding $100,000 for single filers or $200,000 for joint filers, and fully phases out when income reaches $150,000 for single filers or $250,000 for joint filers. The deduction lowers marginal tax rates on income and reduces the cost of purchasing qualifying vehicles. It is scheduled to be in effect for tax years 2025 through 2028, after which it expires.

This option makes the deduction for auto loan interest paid permanent. By reducing the cost of a narrow type of consumption, the option would increase returns to labor, but the phaseout would create higher effective marginal tax rates for some taxpayers as well, resulting in a nearly negligible impact on economic output.

On a conventional basis, this option would increase the primary deficit by $33.7 billion over the budget window. Long-run GDP and GNP would both decline slightly. On a dynamic basis, the primary deficit would increase by $44.5 billion from 2027 through 2036, $10.8 billion more than the conventional estimate. Incorporating changes in interest costs, the publicly held debt-to-GDP ratio would be higher than baseline, reaching 176.4 percent by 2056.

On average, in 2036, taxpayers would see slight increases in their after-tax incomes. Taxpayers in the top 10 percent would not benefit due to the phaseout, while all other income groups would see small increases in after-tax income on a conventional basis. On a long-run dynamic basis, taxpayers would see a slight decline in after-tax income on average.