Your guide to California policy and politics
BY Ben Christopher September 12, 2022
Presented by Pacific Environment, California School Boards Association, and California Water Service

Will California tax Biden student debt relief?

Remind me how that Beatles song goes

If you get too cold, I’ll tax the heat

If your debt is cleared, I’ll tax the relief

Okay, maybe that’s not quite right, but it’s a fitting enough description of the legal conundrum the state of California and as many as 1.3 million indebted residents are now facing. 

Remember when President Biden said that his administration will forgive as much as $20,000 per person in student debt? It turns out there’s a possible catch. Mikhail Zinshteyn, CalMatters’ higher ed reporter, breaks it down:

It’s unclear if current state law requires Californians receiving $10,000 or $20,000 in debt forgiveness to pay income tax on that cleared debt. Whatever the answer, California’s lawmakers vow no one will pay a dime by tax time next spring.

That’s according to Senate President Pro Tem Toni Atkins of San Diego and Assembly Speaker Anthony Rendon of Lakewood — the Democratic leaders in the Legislature — in a public comment Friday responding to an article in the Los Angeles Times.

  • From a joint tweet: “Rest assured, one way or another, California will not tax the federal student debt relief.”

That mirrors a vow from the White House, which said in a fact sheet that borrowers won’t pay federal taxes on the loans they no longer owe.

But the tax codes in some states, which treat debt relief like the gifting of much cash, beg to differ. In California, only the elimination of certain types of federal debt can be exempt from taxation. (For fans of legalese, we’re talking debt forgiveness specified in Title 20 section 1098e of the U.S. Code). 

The U.S. Department of Education wouldn’t tell CalMatters whether the debt forgiveness plan will be executed through section 1098e. Instead, a department spokesperson said to read the Biden administration’s legal memo defending the debt forgiveness plan. CalMatters asked the California Franchise Tax Board lawyers to review that federal memo Thursday but we haven’t gotten an answer yet. 

The upshot: For a childless single filer earning $50,000, taxing $10,000 in forgiven debt would raise that person’s state income tax bill by about $800, according to this tax board’s calculator

Whatever action Atkins and Rendon push through, they’ll need Gov. Gavin Newsom’s signature, wrote Katie Talbot, a spokesperson for Rendon, in an email Friday evening. And state lawmakers need to act fast. If the debt forgiveness is taxable now, a law changing that will need to be in place before Californians start filing their 2022 tax returns.

More from Mikhail: A state pilot program that offered $2,500 grants to help people who lost their jobs during the pandemic acquire new skills is now expanding. The state is hoping to send checks to 190,000 low-income Californians, with half of the money reserved for parents of young kids. 

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The coronavirus bottom line: As of Thursday, California had 10,329,995 confirmed cases (+0.01% from previous day) and 94,558 deaths (+0.2% from previous day), according to state data now updated just twice a week on Tuesdays and Fridays. CalMatters is also tracking coronavirus hospitalizations by county.

California has administered 79,697,832 vaccine doses, and 72.1% of eligible Californians are fully vaccinated.

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1 Where there’s fire, there’s smoke

Drivers pass through heavy smoke while going East on I-80 between Fairfield and Vacaville on Aug. 19, 2020. Photo by Anne Wernikoff for CalMatters

Residents of Chico got good news and bad news this weekend, courtesy of their local fire department.

  • The good news: “There are currently no large wildfires burning near Chico or within Butte County.” 

The bad news: All the smoke in the air — sufficiently thick to prompt the fire department’s clarification to freaked out residents — was billowing in from wildfires blazing elsewhere across northern California and southern Oregon. 

Mosquito Fire may deserve most of the blame. Currently the state’s largest inferno, the fire jumped the middle fork of the American River this weekend in its blistering path across Tahoe National Forest. The mushroom-cloud blooming blaze has created hazardous air quality conditions in the Sierra Foothills and sent smoke pouring into the Lake Tahoe basin, even as off-shore winds promised a slight, temporary respite in Sacramento.

All that ashy air prompted a raft of new public health warnings on Saturday, including one from California Department of Public Health director Dr. Tomás Aragón.

  • Aragón: “Vulnerable people, especially children, older adults, and those who are pregnant should reduce outdoor activity and stay indoors, if possible.”

As of Sunday, the Mosquito Fire was only 10 percent contained, according to Cal Fire. Firefighters have had more luck containing the Fairview Fire raging near Hemet in Riverside County, thanks to some rain spritzed its way by Tropical Storm Kay.

Feeling the heat: Kay also helped finally break the back of a region-wide heat wave that burned through all-time temperature records in communities across California and left Mount Shasta almost entirely snowless for the second summer running. 

On Friday, Gov. Gavin Newsom signed a bill that will make California the first state to create a warning system for extreme heat. Imagine something like the ranked categories that the National Oceanic and Atmospheric Administration issues for hurricanes, only for when it’s really, dangerously hot outside.

2 New developments in LA mayoral campaign

U.S. Rep. Karen Bass of Los Angeles spoke during a House Judiciary Committee hearing in Washington. D.C., on June 10, 2020. Erin Schaff/The New York Times via AP

On Friday night, someone broke into the home of Rep. Karen Bass, the frontrunner in the Los Angeles mayoral race, and reportedly took two guns.

Crime and disorder has dominated the debate in the eye-poppingly expensive Los Angeles mayoral campaign, but until now it’s remained a more abstract point for the candidates. Bass’ opponent, real estate developer Rick Caruso, has run as a no-nonsense businessman who won’t let progressive ideology get in the way of cracking down on crime

If elected, Bass would become the first woman to serve as mayor of Los Angeles. She beat Caruso in the primary by seven-points, despite Caruso spending more than $30 million.

The break-in didn’t seem to interrupt Bass’ weekend campaign plans — she visited Democratic activists in the Valley and San Pedro on Saturday. But the news does round out a terrible, horrible, no good, very bad week for Bass. 

On Wednesday, the Los Angeles Times reported that details about the tuition-free masters’ degree Bass received from the University of Southern California are now playing a “critical” role in a federal fraud bribery case against former L.A. County Supervisor Mark Ridley-Thomas and one of the university’s former deans.

If that’s bad news for Bass, it’s not a great development for USC either. Among the other scandals that have beclouded the university’s once-good name: A $1.1 billion sex abuse settlement, a party-happy med school dean, a central role in a college admissions bribery case

Now, as the  L.A. mayoral campaign turns increasingly bitter, mere association with the school has become a political liability, the Los Angeles Times wrote Sunday. Caruso denounced Bass’ scholarship as “corruption…plain and simple.” Bass’ campaign returned fire, noting that as chair of the school’s board of trustees between 2018 and this year, Caruso helped reach the billion-dollar legal settlement.

  • Former Los Angeles County supervisor Gloria Molina: “It’s regrettable that this is the backdrop for this political back-and-forth…But in the deepest issues of political corruption, (USC has) been in the thick of it.”

3 The biggest bet yet

Illustration via iStock

If you thought the 2020 proposition campaigns were a budget-busting doozy — dominated as they were by a the $200 million in spending from Uber, Lyft and Doordash — the 2022 version is shaping up to be even doozier. 

First, take the two competing sports betting measures:

  • The campaign backing Prop. 26, which would allow in-person sports betting at tribal casinos and horse racing tracks, has now raised $107 million while the “No” campaign has scrounged together $42 million.
  • The backers of Prop. 27, which would green-light online sports betting anywhere in the state, have raked in $173 million, while its opponents have raised $150 million.

Doing some quick arithmetic, that works out to nearly half a billion dollars for two props. For perspective, that’s more than than all the money raised on both sides of every proposition on the ballot in 2018 or 2016 or 2014 or…

And there are still 56 days before Election Day.

Not that money necessarily buys you love. On Sunday, the Los Angeles Times’ editorial board came out with a double-barreled non-endorsement, urging its readers to vote “no” on both the measures, which it called “foolish” and motivated by naked greed.

Quiz

Which of the 2022 California ballot measures do you support or oppose?

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CalMatters Commentary


CalMatters columnist Dan Walters: New legislation accelerates California’s self-mandate to convert to a carbon-free electrical grid by 2045. But can California actually do it?

Getting behind Newsom’s Delta deal: A broad coalition of interests support the administration’s call for bold actions to manage the water flowing through the Sacramento-San Joaquin River Delta, write Jennifer Pierre, general manager of State Water Contractors, and David Guy is the president of the Northern California Water Association.

Other things worth your time


Some stories may require a subscription to read

Tidal marsh or ‘fake habitat’? California project draws criticism // Los Angeles Times

Kevin McCarthy’s fraught path to power // Wall Street Journal

California math students are struggling. Will reforms make the problem worse? // New Yorker

Suspect arrested in murder of 8-year-old Hayward girl Sophia Mason // KRON4

Workers are America’s busiest port are fighting the robots // LAist

The nerve center of the American right is a California think-tank // New York Times Magazine

Anti-tax Dem running for Congress voted for at least 38 tax hikes // Fox News

Navy orders high-level outside investigation of SEAL course // San Diego Union-Tribune

California could give more than a million people with criminal records a fresh start // Vox

Fire destroys ‘a humble giant’ of L.A. churches // Los Angeles Times

See you tomorrow

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