When President Joe Biden announced that his administration would be forgiving up to $10,000 for student loan borrowers (and up to $20,000 for Pell Grant recipients), his statement included information about how the debt forgiveness would be taxed.
“Thanks to the American Rescue Plan, this debt relief will not be treated as taxable income for the federal income tax purposes,” the statement reads. It makes sense: this is money that never met the hands of its recipients.
But last week, North Carolina’s Department of Revenue issued its own statement regarding student loan forgiveness, informing borrowers that they would be required to pay state taxes on the income saved from student loan forgiveness. Based on the current highest tax percentage, North Carolinians could owe up to almost $500 to the state come tax season.
The reason? The North Carolina General Assembly did not adopt a section of the Internal Revenue Code that would include student loan forgiveness as non-taxable income. The Department of Revenue says it is “monitoring any further enactments by the General Assembly that could change the taxability of student loan forgiveness in North Carolina.”
Taxes aren’t bad. They’re necessary for the functioning of our state and our country. But the hypocrisy among NC lawmakers here is evident.
One of the biggest issues that Republicans have been rallying around for the 2022 election is inflation and the cost of living. GOP candidates say that tax cuts will help working class North Carolinians confront rising everyday expenses, yet GOP lawmakers have declined to do something that would, in fact, cut taxes for North Carolinians in the workforce.
The student loan provision in question comes from the NC General Assembly’s budget, passed last year. It’s the same session at which the legislature decided to phase out corporate income tax by 2025, the same one that allowed tax exemptions to people who received forgiveness from their PPP loans.
North Carolina is one of only seven states that are expected to tax student loan forgiveness. Indiana was the most recent, joining NC, Mississippi, Arkansas, California, Minnesota and Wisconsin, according to an analysis from the Tax Foundation. North Carolina isn’t taking the biggest bite of the money (that’s Minnesota, at this point), and our tax rates have gone down. Still, it’s shameful that North Carolina’s politicians are saying one thing about taxes and doing another, depending on who it is that’s getting taxed.
NC lawmakers also seem unwilling to acknowledge the hypocrisy at all, much less denounce it. At the very least, North Carolina’s Republicans could stop saying that loan forgiveness is a “slap in the face” to the state’s working and middle class. What is a slap in the face to workers are a lack of worker protections, barriers to unionizing in the state, and the fact that the state won’t raise the minimum wage.
Lawmakers still can change whether or not student loan forgiveness is taxed, and they can do so after the 2022 general election, before tax documents are sent across the state. They could acknowledge that paying on money you never had in the first place, that would have been owed over time, doesn’t make sense.
Taxes aren’t bad; what’s bad is giving breaks to some while adding extra taxes for others.
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ABOUT THE WRITER
Sara Pequeño is a McClatchy Opinion writer and member of the Editorial Board.
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