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.
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.
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1 Where there’s fire, there’s smoke
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
- Bass, in a statement she issued the following day: “It appears that only two firearms, despite being safely and securely stored, were stolen. Cash, electronics and other valuables were not.”
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.
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
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.
Which of the 2022 California ballot measures do you support or oppose?
Take the quiz →
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