California fire victims have suffered enough. But now their suffering may be taxed | Opinion

Warren Thompson was having his first cup of coffee on a November morning nearly five years ago in his home in Paradise when his sister-in-law called to warn him of an approaching fire. He looked out the front window.

“It was completely dark like it was in the middle of the night,” Thompson said.

He immediately left to drive toward Chico in his 2004 Honda Accord, leaving all of his belongings — save for his Tabby cat, Cinder. What was normally a 20-minute drive took a harrowing four hours. But he was among the survivors of the second deadliest fire in modern American history, claiming 85 lives.

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“And then,” Thompson said, “the fun began.”

The 72-year-old Thompson’s idea of fun is putting his financial life back together. The final insult to his financial injury is that his total payout from Pacific Gas and Electric, which caused the Camp Fire, is subject to federal income tax. Relief can only happen if Congress does something helpful.

The day that relief legislation was to be heard earlier this month, Republican Kevin McCarthy of Bakersfield lost his speakership in the House of Representatives. Thus ignited a weeks-long political inferno on the Republican side of the aisle, and it wasn’t until Wednesday that Louisiana Rep. Mike Johnson was elected speaker after three public failures.

“Hopefully this doesn’t get pushed back and forgotten about,” said Thompson, who now lives in a Sacramento apartment near the Arden Fair Mall. After Cinder’s natural passing in 2020, Thompson’s new cat companion is Leo, another Tabby, who enjoys the window view of town.

Congress’ track record this tumultuous year is dismal.

Thompson and thousands of other fire victims throughout California are prisoners of D.C.’s political dysfunction. Even though there appears to be bipartisan support to waive taxes on these settlements, none other than Senate Minority Leader Mitch McConnell set back the effort an entire year. A House that is barely getting back to business faces fundamental issues, such as passing a budget and deciding whether to keep funding the war in Ukraine. It’s the kind of mess that can disenfranchise everyday Americans who need something from Washington.

“Any time you have a tax bill, it is a heavy lift,” said Rep. Mike Thompson (D-Napa), a co-author of the tax relief bill. “When you have one that is as expensive as this one is, and it deals with only a certain universe of people, it becomes even more difficult.”

Drought and soaring temperatures and wind — coupled with ignitions from PG&E lines — caused a string of horrific fires in California that helped push the company into bankruptcy. There was the 2015 Butte fire, the 2017 North Bay wildfires and the 2018 Camp Fire.

As part of its settlement to emerge from bankruptcy, PG&E agreed to create the Fire Victims Trust to partially compensate wildfire survivors. So far, it has dispersed an estimated $10.58 billion in cash and company stock and identified 70,173 claimants. That amounts to about $150,000 per claimant on average so far, which is not exactly enough to rebuild in Paradise — or anywhere in California.

Victims like Thompson then received notice that these payouts were taxable. Many had agreed to share a percentage of their settlements with attorneys for help filling out the numerous forms, but these payments are taxable as well. Imagine the feeling of paying an attorney thousands of dollars and have the IRS consider those payments taxable revenue.

Relief from paying California taxes came swiftly because these fires are a far bigger deal for California legislators. Republican Assemblyman James Gallagher of Yuba City authored the bill last year to exempt funds from the Fire Victims Trust from taxes. It passed unanimously and was promptly signed by Gov. Gavin Newsom.

Federal legislation backed by Thompson and Rep. Doug La Malfa, R-Oroville, also cleared the House last year and had chances of getting tacked onto a larger omnibus bill. But then McConnell got in the way.

McConnell “refused to do any tax legislation in the omnibus bill,” Rep. Thompson said. So tax relief was dead for the year. He and LaMalfa have regrouped with a new bill this year. LaMalfa “has been a great partner,” Thompson said.

Warren Thompson, meanwhile, was one of an estimated 27,000 victims urging D.C. to take action. California’s congressional delegation did manage to extend the federal tax filing another month, to Nov. 16, hoping legislation would pass by then. Rep. Thompson is optimistic of the House approving it yet again.

“We need one of two things to happen: We need either a tax bill or a disaster bill to move through the Senate,” he said.

Back in Sacramento, Warren Thompson is not holding his breath. “It still looks like a long shot,” he said. But he has not yet paid his $15,000 federal tax bill, hoping for a minor miracle.

The bill, if passed and signed by President Joe Biden, would reimburse fire victims for any federal taxes they pay on Fire Victims Trust payments. This is such a no-brainer, yet not a single vote is scheduled. Making lives a little easier for these Californians shouldn’t be so hard back on Capitol Hill.