Tag Archives: student loan forgiveness

Our Selective “Anti-Tax” Legislators

In Indiana, Republicans always, always talk about reducing the “tax burden” on Hoosier citizens. They incessantly brag about their solicitude for taxpayers, and Indiana’s status as a “low tax” state.

Well…it turns out that their solicitude is pretty selective; it’s focused on the folks who are most likely to support them, either financially or with their votes. Businesses, corporations, rich folks…Struggling students, not so much.

In fact, not at all.

President Biden’s continuing effort to relieve millions of Americans from a real burden–student loan debt–has already benefitted 35,000 young Hoosiers. A provision of Biden’s American Rescue Plan also amended the Internal Revenue Code so that the discharge of that debt would not be taxable. (As you may or may not know–but your accountant will confirm–if you owe someone money, and that someone “forgives” the debt, the IRS considers the amount forgiven to be income, and you will be taxed on it.) Taxing student loan forgiveness would rather obviously go a long way toward reducing the relief being provided. 

Indiana’s legislators–those solicitous “anti-tax” Republicans–looked at the situation and said “not so fast!”

The Indiana Department of Revenue explains.

The IRS excludes federal direct student loan forgiveness from federal income tax due to an exemption in the Internal Revenue Code. Although the computation of Indiana’s adjusted gross income (AGI) begins with federal AGI, Indiana is a static conformity state, meaning that Indiana’s tax code is linked to the Internal Revenue Code (IRC) as of a specific date. For a provision that impacts federal AGI, the effect on Indiana AGI depends on whether the Indiana General Assembly wholly or partially decouples from the federal provision during the legislative session.

When the American Rescue Plan Act (ARPA) expanded IRC section 108(f)(5), excluding student loan discharge under certain circumstances from federal gross income, the Indiana General Assembly passed a law decoupling Indiana from that provision in the IRC, and enacted a state provision requiring Hoosier taxpayers to add back the excluded amount to their Indiana AGI.

In 2022, this provision was clarified retroactively to provide that discharges resulting from total and permanent disability, death, or bankruptcy were not required to be added back. That law, IC 6-3-1-3.5(a)(30), still stands; therefore, federal discharge of some student loans between 2021 and 2025 must be added back to Indiana’s adjusted gross income. This includes the one-time student loan forgiveness under the Biden-Harris Administration’s Student Debt Relief Plan, even though the plan was not part of the ARPA.

Nice of them to say that if the loan was discharged because you died, were permanently disabled or bankrupt, they’d let you off the hook.

Indiana thus joins Mississippi, North Carolina and Wisconsin (last I looked, Arkansas was still considering the matter). Students elsewhere in the country are not being penalized.

Things are different for corporations. Indiana is one of only twelve states with corporate tax rates under 5%. That’s in contrast to states like Minnesota (9.8 percent),  Illinois (9.5 percent) and Alaska (9.4 percent). The higher corporate rates in those states evidently made it unnecessary for them to tax students’ debt relief. (I’m sure it has nothing to do with the fact that corporations can afford lobbyists and students can’t.)

A statement issued by Representative Greg Porter at the time student loan repayments resumed (they’d been paused during the pandemic) elaborated on that point. Porter wrote:

More than 900,000 Hoosiers currently have some form of student loan debt, with the average Hoosier owing about $32,000. With repayments beginning soon, many Hoosiers will face financial stress, a stress the Republican supermajority has done nothing to ease for constituents.

“Indiana is one of the few states that taxes an individual’s student loan forgiveness or an employer paying off the student loan for an employee. Last session, my bill to make loan forgiveness dollars exempt from taxation never received a hearing. This is a shame, because Indiana Republicans never shy away from dispensing tens of millions of dollars in tax credits to large companies seeking move to Indiana but refuse to take action to make conditions better for Hoosiers living and working in our state.

The next time you hear Indiana politicians talk about their concern for us poor, struggling taxpayers, you might ask them just which taxpayers they want to relieve–and which ones are unworthy of their solicitude.

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Speaking Of Punitive…

One of the cases the Supreme Court will decide this term is a lawsuit brought by Republican Attorneys General opposed to cancellation of a portion of student loan debt. Evidently, Indiana isn’t the only Red state with a despicable and arguably dishonest Attorney General, as a Brookings Institution study documents.

The AGs aren’t the only opponents of giving students some fiscal breathing room –the House of Representatives recently voted to repeal the program. But as Brookings  researchers write in the linked New York Times essay, the lawsuit  brought by six Republican-led states has received inadequate scrutiny.

So we decided to do the fact-checking ourselves. We filed public records requests and reviewed almost a thousand pages of internal financial documents, emails and other communications from the parties in the case, as well as court filings and the transcript of oral arguments at the Supreme Court in February.

We found that the states’ most fundamental justification for bringing the case — that canceling student loans could leave a Missouri-based loan authority unable to meet its financial obligations to the state — is false. As our research shows, and the loan authority’s own documents confirm, even with the new policy in place, its revenues from servicing loans will increase.

That this claim is manufactured–that it is a lie– is important.

Unlike legal systems that permit advisory opinions, in America, if there’s no injury, there’s no right to sue. The legal term is standing, and according to Brookings, the plaintiffs don’t have it. They simply said they did. (With our current Court–a Court that demonstrably privileges litigants with status and power –that may be enough.)

As the researchers note,

The ease with which the state attorneys general were able to make claims that contradict basic facts, void of any rigorous stress testing, is all the more striking when compared with the endless hoops that ordinary people have to jump through to prove their eligibility for financial aid or debt relief. This is what the sociologist Howard Becker calls the “hierarchy of credibility”: Those at the top of the social hierarchy don’t have to prove their claims; they’re just taken for granted. But claims made by those on the bottom are burdened by skepticism and demands for proof. In this instance, that difference may deprive millions of people of much-needed relief….

Compare that with the lengths that normal people must go to in order to prove they are eligible for debt relief. They have to submit mountains of documentation. Their claims are often denied for the most trivial of technicalities — a form filled out with green ink instead of black or blue, an electronic signature instead of an inked one.

Applicants for the older Public Service Loan Forgiveness program have to get paperwork signed from employers they had a decade ago. If a loan servicer transfers the account, the borrower may lose her payment history, and therefore her eligibility for relief. People who attended predatory for-profit colleges have had to submit extensive applications for relief, documenting their schools’ false allegations and misrepresentations. Even the Biden plan required an application.

The linked essay goes into detail, thoroughly debunking the damage claims that support plaintiffs’ standing, and I encourage you to click through and read that analysis. But I want to focus on a different–albeit related–question: what policy position does this dishonesty serve?

To put it another way, why are so many Americans–mostly but not exclusively Republicans–so opposed to relieving student debt?

In the final paragraph of the linked essay, the researchers write that an affirmation of the plaintiff’s claim would

effectively be confirming a fake plaintiff, false facts and an unjust claim. Falsehoods about falsehoods would be a hard way to lose the debt relief the president promised to 43 million Americans and their families. And a Supreme Court that doesn’t scrutinize basic facts would be a further disgrace for a body already plagued by scandal.

I’ve previously noted how punitive today’s GOP has become. Here in Indiana, we’ve seen our Attorney General wage a petty vendetta against a doctor who legally aborted a ten-year-old rape victim. We’ve seen legislators go out of their way to harm trans children and dismiss the very notion that women are entitled to bodily autonomy and effective health care.

Nationally, we’ve witnessed GOP efforts to punish the poorest Americans by curtailing social welfare programs (while protecting the rich against attempts to audit them or–gasp!–make them pay their fair share.)

American lawmakers used to argue about the “how”–what’s the most effective way to help this or that population, or solve this or that problem? But “how” has given way to “why”–why would we want to help the less fortunate?

When did the cruelty become the point?

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