Taxing Tuesday: Using Taxes as Standing to Sue over Student Loan Forgiveness

Standing is needed to sue -- but other

Well, I did not see that coming.

I mean, yes, I saw lawsuits over Biden’s student loan forgiveness (what’s a few hundred billion dollars between friends?), but I did not see that the basis for the lawsuit would be the tax liability that would be generated by that forgiveness…. though I had noted some states would see the loan forgiveness as income.

The Corner at National Review

The First Lawsuit Is Filed Against Joe Biden’s Illegal Student Loan Move

This morning, the Pacific Legal Foundation filed a lawsuit against President Biden’s illegal student-loan executive order. The case was filed in the United States District Court for the Southern District of Indiana.

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There is no doubt that Biden’s order is illegal. Not only is the statutory justification incredibly weak, but the condition that is necessary for it to apply — the existence of an emergency — simply does not obtain. There is a reason that most of the legal analysis has focused on the potential problems with standing, rather than on the merits of Biden’s argument, and that reason is that there are, in fact, no merits to Biden’s argument. In effect, standing is the whole game.

The Pacific Legal Foundation may have cracked that. The argument here is that Garrison (like others) has suffered an injury because the state of Indiana — like Wisconsin, Minnesota, Arkansas, and North Carolina — taxes loan “forgiveness.” Usually, this wouldn’t be a problem, because, under the terms of Biden’s order, most potential recipients will be obliged to actively apply for the “forgiveness.” But, as an enrollee in the Public Service Loan Forgiveness program that Congress has created, the forgiveness will happen automatically for Garrison, which, in turn, will create a taxable event. Because loan forgiveness under the Public Service Loan Forgiveness is not taxable in Indiana (or the other states), Garrison will be hit with an unforeseen tax penalty as a result of the forgiveness of debt that, absent Biden’s illegal reclassification, would have been achieved without incurring any tax burden.

Holy crap, that gives me a headache.

But this is the deal — The Public Service Loan Forgiveness program involves working for qualified employers (military, government, and even not-for-profit) full-time, having made 120 qualifying payments to your qualified student loans, yadda yadda.

Evidently, these people will get automatically hit with loan forgiveness and thus will get hit with a state income tax liability (in some states) without their permission.

Ooopsie.

Maybe some details get overlooked when you’re spending hundreds of billions of dollars via the stroke of an executive pen and not the usual budgetary process.

Other coverage

Reason: ‘Flagrantly Illegal’: Law Firm Files Lawsuit To Stop Biden’s Student Loan Forgiveness

“Despite the staggering scope of this regulatory action, it was taken with breathtaking informality and opacity,” the lawsuit claims. “In the rush, the administration has created new problems for borrowers in at least six states that tax loan cancellation as income.”

According to Garrison, he is already receiving debt relief under Public Service Loan Forgiveness (PSLF), a federal program for borrowers who work in public service at nonprofit organizations. Qualifying borrowers who make a certain number of payments and meet maximum income requirements can have the rest of their debts forgiven by PSLF. Garrison expects to qualify in about four years.

Importantly, debt relief under PSLF is not subject to state taxes. Biden’s broad forgiveness plan, however, will be taxed as income in Indiana—where Garrison resides—as well as Wisconsin, North Carolina, Minnesota, Mississippi, and Arkansas. Garrison will be “stuck with a tax bill that makes him financially worse off than continuing with his repayment program under PSLF,” according to the lawsuit. “He did not ask for cancellation, doesn’t want it, and has no way to opt out of it.”

CNN: New lawsuit attempts to block Biden’s student loan forgiveness plan

The lawsuit, which names the Department of Education as a defendant, challenges the agency’s “unacceptable abuse of executive authority to restore the rule of law and to enforce the Constitution’s separation of powers,” according a press release from the Pacific Legal Foundation.

White House spokesman Abdullah Hasan said in an emailed statement that “the claim is baseless for a simple reason: No one will be forced to get debt relief. Anyone who does not want debt relief can choose to opt out.”

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But Luke Herrine, an assistant law professor at the University of Alabama who previously worked on a legal strategy pushing for student debt cancellation, is skeptical the lawsuit will be successful.

The case, he said, hinges in part on whether the plaintiff can opt out of the new student loan forgiveness policy. The Department of Education has yet to issue formal guidance on the policy, so it’s currently unclear who may be able to opt out of the debt relief and how.

Now that a lawsuit has been filed and that standing is based on not being able to opt out, I’m pretty sure they will say people in the Public Service Loan Forgiveness program can opt out.

They’re not completely stupid after all.

Executive Orders are even more magical than lawmaking, in that one can make them exactly what one wishes, even if one were sloppy in the original execution. No need to go back for committee meetings, voting, etc. Heck, I bet they don’t even have to get the President to sign anything new again.

There’s a problem? “They” say fix it. So it’s fixed.

Ta da.

Weak rebuttal: how dare you complain about giving away money

The Hill: Group sues to block Biden’s student loan forgiveness plan

In a statement to The Hill, a spokesperson for the Education Department called the lawsuit “baseless” and said “opponents of the debt relief plan are trying anything they can to stop this program that will provide needed relief to working families.”

So, yes, I understand many other people getting this loan forgiveness will not be hit with state tax liability. Many will be very happy to be getting this “free money”.

But this rebuttal doesn’t seem to be coming with “Yes, Democrats control both House of Congress, and it would have been appropriate for this expenditure of about $400 billion in federal funds to have been passed as a bill as opposed to an executive order.”

A rebuttal of “people like free money” isn’t really the knock-down argument one thinks it is.

Yes, we all know that people like free money, but the last time I checked, the Constitution didn’t give the President the power to set the budget.

To be sure, Congress itself is not very restrained in doing that, but if hundreds of billions of dollars are to be spent, seems only fair that it should be done properly.

I know why those in Congress didn’t want their names tied to this, and Biden didn’t mind. Biden will likely not have to worry about running for office again, and even if he does, he’s not one of the many representatives and senators running for re-election this year.

Second, the Dems would likely have a faction that would want even more money thrown at the student debtors, others who want to make sure only the anointed get their debt forgiven, etc. Indeed, as per the plaintiff who has standing, they had already created a debt forgiveness program involving people who checked off the correct ticky boxes… it just so happens that by “helping” this plaintiff, they also screwed him over. But I’m sure they’ll undo that so they make sure the lawsuit can’t proceed.

So, that’s all taken care of…. except for just adding to the federal debt, which all these student un-debtors will now be expected to pay in the future.

So that’s all good, right?