Biden’s action is an egregious usurpation of power that is horrible on policy grounds, and no amount of misdirection is going to make it any more acceptable.
I was out last week and as I’ve been catching up on the news, I’ve been struck by the incredibly disingenuous effort by liberals to normalize President Biden’s illegal student-loan forgiveness handout. This piece, by the Washington Post’s Paul Waldman, is particularly egregious, as he uses one flawed analogy after another in an attempt to make it seem run-of-the-mill for a president to hand out a half-trillion dollars’ worth of benefits without congressional approval to reward a favored political constituency in the run-up to an election.
“At the most basic level, loan forgiveness isn’t novel or even unusual,” Waldman writes. “Our bankruptcy system allows people to discharge loans every day — yet perversely, the law makes it extraordinarily difficult to get released from student loan debt even if you’re bankrupt.”
Waldman makes it seem as though discharging loans through bankruptcy has no downsides, when in reality it has many, and the process is in no way equivalent to what’s happening with student loans. In a bankruptcy situation, government does not simply wave a magic wand and suddenly people have $20,000 less of credit-card debt. The average Chapter 7 bankruptcy costs nearly $2,000 in filing and attorney’s fees, and the process takes months. Bankruptcy also shreds people’s credit, making it highly difficult to obtain mortgages, rent apartments, or lease or buy cars for years.
None of this applies in the case of Biden’s student-loan handouts. Borrowers will not have to go through months of expensive and agonizing paperwork, or to have their finances suffer as a result of taking $10,000 to $20,000 from the government. Instead, they merely have to apply and “attest” that they make under $125,000. Once they do, they will not suffer any financial repercussions for failing to repay their debts.
Were we debating a piece of legislation working its way through Congress that enabled borrowers to discharge student loans after going through the typical Chapter 7 bankruptcy filing process and seeing their credit score obliterated, Waldman’s point would be relevant. But we are not and so his point is not.
He also points out that, “Pandemic relief distributed hundreds of billions of dollars in forgivable Paycheck Protection Program loans to businesses.” To recap, in the spring of 2020, governments were forcing businesses to close and encouraging workers not to go to work even though those businesses would have much preferred to simply remain open. To allow those businesses to maintain their payrolls and to make it feasible for workers to remain home, Congress decided to compensate those businesses, and voted to do so in an overwhelmingly bipartisan manner. Again, this has no comparison to the current situation. Local governments are not dictating that borrowers stop working and stop paying off their loans, and Congress has taken no action. Instead, Biden decided to act unilaterally to reward people who would prefer not to repay the money they agreed to repay when they were obtaining expensive educations.
“How many people complaining about loan forgiveness have campaigned against the mortgage interest deduction?” Waldman asks. “It costs taxpayers tens of billions of dollars every year, and its recipients — homeowners who itemize their deductions — are disproportionately wealthy. Where are all the cries of ‘How does this help people who rent, or people who already paid off their mortgages???'”
This one is particularly egregious. To start with, I have long been a proponent of ending the mortgage-interest deduction. Here is one example from 2014. In 2017, I specifically wrote, “There’s no reason why the tax code should have a bias in favor of individuals and families who own their own homes over those who rent, or that it should have a bias in favor of those who have larger homes in more expensive areas over smaller ones in cheaper areas.”
I wish I could say I was a lonely voice in the wind, but actually, ending the mortgage-interest deduction has long been a goal of many conservative tax reformers. That’s why the 2017 Republican tax law significantly limited the deduction, bringing it down from $1 million in principal to $750,000. Tax Policy Center notes that following the changes, “Not surprisingly, the IRS found that the share of tax returns claiming the mortgage interest deduction fell from 31 percent in 2017 to 11 percent in 2018, though the reduction varied by income group. Higher income groups, who are more likely to own homes and other assets to itemize, saw the largest declines.”
What’s more, the tax law doubled the minimum standard deduction, and increased the value of the deduction each year to try and keep up with inflation, while the mortgage-interest deduction remains the same. What that means is that over time, fewer and fewer people will be taking the mortgage-interest deduction. Effectively, Republicans put the mortgage-interest deduction on a glide path to irrelevance.
So Waldman’s theory that very few people complaining about the student-loan bailout complained about the mortgage-interest deduction was pulled out of thin air.
Regardless of the fabricated hypocrisy charge, the mortgage-interest deduction once again has no relevance, because we are not debating legislation that would make student-loan interest payments tax deductible. We are debating Biden bypassing Congress to give hundreds of billions of dollars to a pet constituency.
Biden’s action is an egregious usurpation of power that is horrible on policy grounds, and no amount of misdirection is going to make it any more acceptable.