Open Thread: Student Debt and Tax Credits

On March 9, Craig opened a successful thread allowing students to discuss the idea of whether the federal government should, in addition to giving trillions of dollar in bailout money to other industry actors, forgive student loan debt. Absent the obvious moral hazard implications noted in the commentary of that thread, the idea was quite popular. Indeed, we even had the privilege of having Rob Applebaum, the creator of the Facebook group that started it all--and, unsurprisingly, that has now been featured on CNN and the Huffington Post--answer our readers' questions, and discuss the merits of his proposal. We have received numerous requests for a follow-up. So, here we go.

I spoke with one of our readers who suggested a new related idea for discussion on the matter of providing some relief to students with loan debt: namely, whether providing tax benefits for paying back student loans is a technically feasible and desirable policy in our current economic climate. Specifically, he noted that the government should consider:

making paying back an educational loan like contributing to a 401k for tax purposes . . . [This] should make sense.  Any money you put into the loan payback is typically untaxed and not included in your salary.

Our reader considered this idea:

ever since President Obama started discussing higher taxes on salaries while running for President.  [He] figured that it just did not make sense for graduates with huge loans.  They should be able to pay off all of their loans before being taxed at such a high rate.

Accordingly, this proposal should be considered in the context of graduate students who can be expected to earn taxable income over the level at which President Obama has proposed to raise the marginal rates.

Thoughts?

--------

See The Wallet Pop Blog for a discussion of a similar idea

Congress to Vote on AIG Tax

The House is set to vote on the 90% tax we discussed the other day. While plainly geared to recoup the AIG bonuses, the tax is going to be broader. As the AP reports:

The House is scheduled to vote today on a bill that would levy a 90 percent tax on bonuses paid to employees with family incomes above $250,000 at companies that have received at least $5 billion in government bailout money.

We'll keep you posted on how this plays out.

------

UPDATE (3:19 PM): It looks like Jeff and his allies will be upset, but we hope the most recent news won't scare them away. As it turns out, Congress overwhelmingly passed the bill 328-93, according to the New York Times. According to the Times, the Senate will take up the matter next week.

------

UPDATE (5:25 PM): TaxProf Blog has posted further details on the bill, including PDFs of the relevant documents. We encourage you to take a look.

The Constitutionality of the Proposed AIG Bonus Tax (UPDATE)

In an earlier post on the probability of Congress taxing recent AIG bonuses, I mentioned that I would write a follow-up on the potential constitutional implications posed by the action. Well, it looks like the godfather of constitutional law, Harvard Law Professor Laurence Tribe, beat me to the punch. In a note responding to Connor Clark at The Atlantic, Professor Tribe noted:

I'm in the process of taking a closer look at this issue at the request of several others both in and out of government, but I can tell you this much on the basis of what I know from my past research and experience: It would not be terribly difficult to structure a tax, even one that approached a rate of 100%, levied on some or all of the bonuses already handed out (or to be handed out in the future) by AIG and other recipients of federal bailout funds so that the tax would survive bill of attainder clause challenge.

Such a tax would presumably be leveled on the basis of some criterion sufficiently general to avoid classification as a measure targeting solely a closed class of identified and named individuals. The fact that the individuals subject to the tax in its retroactive application would in principle be readily identifiable would not suffice to doom the tax either from a bill of attainder perspective or from a due process perspective. Moreover, the fact that the aim of such a tax would be manifestly regulatory and fiscal rather than punitive and condemnatory, and that the tax would be part of a measure that would be prospective as well as retroactive in its operation, would serve to blunt the force of any bill of attainder challenge. Finally, such a tax would be devoid of the sting of political retribution and would not partake of the classic "trial by legislature" that the attainder ban was designed to avoid.

All things considered, I believe it very likely that Congress could design a fully constitutional means of clawing back into the federal treasury all amounts paid (or to be paid in the future) in the form of retention bonuses from federal funds disbursed either by the Federal Reserve Board pursuant to legislative authorization tracing to the 1930s or by the Treasury pursuant to the most recently enacted federal bailout and stimulus measures.

------

Further, for an interesting analysis on whether the government can retroactively invalidate the AIG contracts which contained the bonus provisions for executives, take a look at this article by Lawrence Cunningham.