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. The core of the complaint is that:
the administration has created new problems for borrowers in at least six states that tax loan cancellation as income. People like Plaintiff Frank Garrison will actually be worse off because of the cancellation. Indeed, Mr. Garrison will face immediate tax liability from the state of Indiana because of the automatic cancellation of a portion of his debt. These taxes would not be owed for debt forgiveness under the Congressionally authorized program rewarding public service. Mr. Garrison and millions of others similarly situated in the six relevant states will receive no additional benefit from the cancellation—just a one-time additional penalty.
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 exist. 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.
And 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.
If the court accepts that this constitutes a legitimate injury, the rest is likely to follow.
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