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Better ways to address worthy priorities

Originally published in the Herald-Mail

By Thomas A. Firey
Published on Sunday, August 13, 2006
OP-EDS

HAGERSTOWN - Washington County Commissioners candidate Paul Swartz is to be applauded for clearly defining two policies that he would push if elected ("Education, tax relief are priorities," July 23.)

Doing this sets him apart from the too-many candidates who campaign on the haziest of ideas.

Swartz vows to tackle two crucial local issues: increasing the number of county workers with higher education and easing the property tax burden. Concerning the former, workers in today's economy who want success and financial security will need the critical thinking, occupational training and adaptability skills that college and/or advanced job training can provide. Concerning the latter, soaring tax assessments are becoming increasingly onerous, especially for seniors.

Swartz's goals are admirable and, as he says, heart-felt. But are his proposals appropriate?

He first proposes that county taxpayers pay for high school graduates to attend "the local college of their choosing (Hagerstown Community College, Hagerstown Business College or the University of Maryland downtown.)"

According to state survey data, some 47.8 percent of the county's 2005 graduating class decided to enroll in a two- or four-year college, another 9.9 percent planned to both work and take postsecondary classes, and another 5.9 percent planned to enter the military or an advanced job program. So, a majority of county youngsters are pursuing postsecondary education, though the county can aspire to even greater enrollments.

Is Swartz's subsidy the right way to do that? Census data indicate that people with higher education earn dramatically more over their lifetimes than people without. One set of calculations indicates that the difference in inflation-adjusted lifetime earnings for a person with a two-year degree and a person with no degree is well over $100,000. The difference for a four-year degree is more than $300,000. Those figures indicate that college is a very good investment.

But the figures also suggest that it is grossly unfair to make county taxpayers subsidize that education. Data from the 2000 Census show that more than 85 percent of county residents over age 25 do not have a four-year college degree. If the county were to adopt Swartz's proposal, it would regressively redistribute wealth from non-degreed workers to students who will earn much more money over their lifetimes. Regressive policies are highly questionable and violate the principles of both liberals and conservatives.

A better approach would be to help students obtain college loans that the students would later repay (with interest) from their much-higher earnings. Fortunately, there is ample student loan money available at reasonable interest rates - and the interest is often tax deductible. If the county wants to help in this, it can inform (repeatedly) students and their families that it is well worthwhile to take out college loans, because that investment will pay off handsomely over the students' lifetimes.

Swartz's second proposal is to implement a graduated property tax cut for people over age 65, with people over 79 paying no property taxes at all. At first glance, this seems a good proposal; seniors often have limited income and the annual property tax bill poses a large burden.

But this proposal is also problematic. Data well establish that, in the United States, the older a person is, the wealthier he or she typically is and the more rapidly his or her wealth grows. For instance, a 2000 Federal Reserve report shows that over the decade 1989-1998, the age cohort of 75 and older had the highest median net worth of any age group and its wealth grew at the fastest rate of any cohort. The age cohort of 65-74 had the second highest median net worth and their wealth was the second-fastest growing. Meanwhile, the net wealth for the age cohorts between 45 and 64 were largely stagnant while the cohort of under-35 had, by far, the lowest net worth - and their wealth declined over the decade. Those trends are likely continuing to this day.

There are many poor seniors. But the data are undeniable: The median senior - the typical senior - is much wealthier than the typical middle-aged or young person, and the senior's wealth is growing at a much faster rate. Swartz thus proposes shifting Washington County's property tax burden to poorer age groups. Like his student loan idea, Swartz's tax break is regressive. And, again, regressive policies are highly questionable and violate the philosophical principles of both liberals and conservatives.

But seniors do struggle with property taxes because much of their wealth is tied up in their homes. That wealth is hard to tap. Can those people be helped?

What if the county were to allow seniors (and, perhaps, any homeowner) to defer their property tax payments until the title of their home is transferred? If the title transfers through sale, the accumulated tax would fall on the seller; if the title transfers without consideration, the accumulated tax would fall on the title recipient.

The tax payment should not be onerous because, if the house is sold, the seller would have just received an enormous payment. If there is no consideration (e.g., a title transfer as part of an inheritance), the beneficiary would have received a very valuable asset that would more than outweigh the tax bill.

Over the long run, this proposal would not deprive the county of revenue. The county would likely have to float bonds to cover an initial drop in property tax revenue and, occasionally, to "smooth" future revenues, but the tax deferrers would fully repay those bonds over time.

I admit, I've never heard of anyone else proposing this idea, much less of a community trying it, so there likely are problems that will need to be overcome. But I think it has promise - it could greatly help seniors without regressively shifting the county's tax burden to less wealthy people.

Candidate Swartz assuredly does not want to adopt regressive policies. He only wants to achieve the goals he outlines, and rightly so. I hope that he and other commission candidates consider the alternatives outlined above, because they would be a much fairer way to help the county's young people and senior citizens.

Thomas Firey, a Washington County native, is a Cato Institute policy scholar and senior fellow for the Maryland Public Policy Institute.