The Poor People Pay Rich People’s Loans Boondoggle

Others may call it student loan forgiveness or some other mealy-mouthed phrase.  I’m with Karol Markowicz: it’s the poor people pay rich people’s loans boondoggle.

Karol Markowicz with correct names the poor people pay rich people's loans boondoggle

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Before getting into the discussion, one items needs to be clarified.  In most cases, when part of a debt is waived by the lender, the amount of the waiver is taxable income to the borrower.  But guess what? The Democrats were ready for this:

Loan proceeds are not taxable the poor people pay rich people's loans boondoggle

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So not only do these folks get their purchasing power increased by the amount of their loan that’s waived, they don’t have to pay federal taxes on the income.  As far as I know, no states have exempted this income from their state taxes. First, I will happily accept corrections if you let me know.  Second, I’ll try to track whether California and other high-tax states will also exempt this from their state taxes.

Two Twitter threads lead this piece.  At the end, I’ll append links to other articles that seem appropriate (and correct).

First up, Jason Furman looks at the economics.  Short version: very bad.

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Second, Megan McArdle with a personal anecdote.

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Other Useful Articles

Neal McCluskey at Cato: “Biden Student Debt Cancellation Proposal: Even Worse than Expected

Andrew Lautz at the National Taxpayers Union Foundation:Cost of Student Debt Cancelation Could Average $2,000 Per Taxpayer

Arnav Gurudatt, Garrett Watson, and William McBride at the Tax Foundation  ”Inconsistent Tax Treatment of Student Debt Forgiveness Creates Confusion

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About Tony Lima

Retired after teaching economics at California State Univ., East Bay (Hayward, CA). Ph.D., economics, Stanford. Also taught MBA finance at the California University of Management and Technology. Occasionally take on a consulting project if it's interesting. Other interests include wine and technology.