Officials in two states with Republican-dominated legislatures announced this week that they’re planning to cut tax relief that borrowers get from President Joe Biden’s student debt cancellation plan — even though the same states didn’t tax the billions of dollars of loan forgiveness given to corporations and business owners under the Paycheck Protection Program (PPP).
North Carolina and Missisippi’s Departments of Revenue say they’ll consider debt forgiveness taxable income, potentially saddling borrowers with hundreds of dollars of more tax liability, cutting into the sharp relief that the program is set to provide. North Carolina officials say that the taxes will come because the legislature hasn’t moved to exempt the relief.
According to the Tax Foundation, Arkansas, Minnesota and Wisconsin are likely to move to tax the relief as well. Officials in the three states told Insider that their decisions on the exemption are currently pending legislative or executive review.
Though the forgiveness will be exempted from federal taxes, at least 13 states in total aren’t required to uphold the federal exemption, though Hawaii, Idaho, Kentucky, New York, Pennsylvania and Virginia have moved to make the relief exempt.
The long term savings for borrowers will still likely vastly outweigh their tax bills on the relief. But taxing the forgiveness would majorly set back the financial benefit that the plan is designed to provide for borrowers, and would largely affect those with the lowest incomes.
The Tax Foundation estimates that borrowers who are receiving up to $10,000 in forgiveness — 90 percent of whom live in households with incomes of $75,000 or less — could be saddled with up to $490 in state taxes in Arkansas and $985 in Minnesota if those states decided not to exempt the relief, depending on the borrower’s income.
That borrowers would be subject to taxes on the loan forgiveness is ironic, considering that in North Carolina and Mississippi, as well as in each of the states that the Tax Foundation predicts are likely to tax the relief, forgiveness from PPP loans were exempt from state taxes.
PPP loans were passed by Congress in order to help buoy businesses during COVID shutdowns — but it’s unclear whether or not those loans helped keep businesses afloat, and only about a third of the $800 billion given out by the government actually went to employees. The vast majority of PPP loans have been forgiven, and a large chunk of the money went straight into business owners’ pockets.
Further adding to the irony is the fact that, as the White House pointed out last month, many of the people who are against student debt relief have had tens or hundreds of thousands of dollars in PPP loans forgiven themselves. Rep. Marjorie Taylor Greene (R-Georgia), for instance, had over $183,000 in PPP loans forgiven.
Progressives have pointed out that, when it comes to tax and other financial laws, it is often far easier for conservative lawmakers on both sides of the aisle to funnel endless funds to businesses while rejecting proposals to provide relief to middle- and lower-income Americans, who need relief the most.
“The average amount of debt forgiveness to businesses receiving PPP loans: $95,700,” wrote Sen. Bernie Sanders (I-Vermont) in August. “If we could afford to cancel hundreds of billions in PPP loans to business owners in their time of need, please do not tell me we can’t afford to cancel all student debt for 45 million Americans.”