[Congressional Record Volume 155, Number 74 (Thursday, May 14, 2009)]
[Extensions of Remarks]
[Page E1161]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                             CONSUMER DEBT

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                             HON. RON PAUL

                                of texas

                    in the house of representatives

                         Thursday, May 14, 2009

  Mr. PAUL. Madam Speaker, I rise to introduce legislation to help 
Americans struggling with consumer debt by excluding discharges of debt 
from the definition of taxable income. Currently, when someone is 
relieved of consumer debt, such as credit card debt, they are taxed on 
the forgiven debt. So, for example, if a credit card company agrees to 
forgive $12,000 of a $15,000 debt, the debtor's taxable income 
increases by $12,000--even though the debtor does not actually have an 
additional $12,000 in his or her bank account.
  The only way for Americans to avoid turning cancelation of debt into 
a taxable event is by declaring bankruptcy or insolvency. Thus, the tax 
code's perverse incentives could cause more Americans to declare 
bankruptcy, which is neither in the best interest of the debtor or 
their creditors.
  Madam Speaker, the tax code should not punish Americans who work out 
a settlement with their creditors that enables them to avoid 
bankruptcy. This is unfair to both the debtors and their creditors. I 
therefore encourage my colleagues to cosponsor my legislation removing 
discharged debt from the definition of taxable income.

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