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Recipients of student loan forgiveness must pay at least their fair share of taxes

President Biden’s decision to write off billions of dollars in student debt is unfair to responsible Americans and will fuel inflation. But state lawmakers can do something about it: tax windfall profits. It is a long-standing principle that discharge of debt is a taxable event. It could provide revenue for a broad-based, economically stimulating tax relief for all residents of a state.

Debt forgiveness, like income, is an acquisition of wealth, and therefore taxing debt discharges has been a feature of the US tax code since the adoption of the first income tax in 1861. The Supreme Court confirmed the validity of taxing the forgiven debt in United States vs. Wood Kirby (1931). However, last year, the American Rescue Plan prevented any federal tax on student loan cancellation until 2025.

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