COVID-19 didn’t just create a healthcare crisis. It created a financial crisis for millions of people. Savings have been wiped out, and hundreds of thousands of families are staring at a future of uncertainty. For those with tax debts, this has only exacerbated their problems.
The past year has been devastating for several sectors, including the restaurant, travel, tourism, and other service industries. And these are the industries that employ the largest number of Americans. Presumably, a significant portion of them would also have loans to repay.
Relief for student loan payment
Loss of income compounds the problems of those who have to make loan payments. There have been calls for student loan debt forgiveness. The rationale is that the situation was exceedingly rare. The defaults were unintentional and, if they are forced to pay the entire amount, it will only add to their problems.
The federal government has been under pressure to help people tide over the financial loss. Everyone understands the need for more stimulus. The assumption being that as the entire economy came to a pause, there was no discernible income for the majority of the households.
The new administration seems to be listening. One of the first acts of President Joe Biden was to make it easy for those with student loan debt. They won’t owe anything in either interest or the principal amount till September. The president is also in favor of canceling student loans with a cap of $10,000.
The case for tax debt forgiveness
By the same logic, the policy should be extended to tax debt too. It was not their fault that the economy came to a halt. It was a once-in-a-lifetime scenario that nobody could have predicted or planned for. There was no income out of which they could afford to make the tax debt payments.
For those with tax debt, a default can have significant consequences. They will lose their future income and come out of this with shaky credit ratings. Tax debt forgiveness is not just an ethical act but an economically sound policy that will help strengthen the financial conditions of hundreds of thousands.
The federal government and lawmakers shouldn’t see those owing tax debt as defaulters. The payment shouldn’t be seen as a punitive action. Instead, the authorities should consider the current scenario and make efforts to stop them from sliding into financial ruin.
The easiest measure could be to announce an extended moratorium. But a more fruitful and constructive policy could be to write off tax debt, up to a certain amount. That shouldn’t be seen as a write-off but as much-needed relief for people trying to get back on their feet. These are extraordinary times. No one knows when things will get back to normal. But everyone understands that economic recovery for a large portion of Americans will be a steep road. While taking care of other loan payees, the federal government shouldn’t lose sight of those with tax debt. They too deserve our generosity and support.