'Flaw' goes beyond excise tax exemption

May 07, 2006|By Thomas A. Firey

In his April 16 column, Tim Rowland describes a flaw in Washington County's excise tax exemption for "senior housing." Borrowing (with credit) from the group Citizens for the Protection of Washington County (CPWC), Rowland argues that the exemption is more a tax break for wealthy near-retirees than help for struggling seniors on fixed incomes. What is worse, Rowland and the CPWC say, is the exemption unjustifiably breaks the social contract on public education.

Rowland and the CPWC are correct in their analysis - as far as it goes. But they miss an important larger point: The excise tax also violates that social contract. If they are logically consistent, Rowland and the CPWC must agree that not only is the excise tax exemption inappropriate, but so is the excise tax.

To understand this point, we must first clarify the principle that underlies Washington County's social contract on education. Why does the county require that its adult population fairly share the cost of educating its young? It's not simply because children should be educated. If that were the principle, the county would only mandate that all parents educate their children at the family's expense, and the children must attain some level of proficiency. There would be no need for public education's large expenditures and bureaucracy, just as there is no need for large government expenditures and bureaucracy in order for states to mandate that drivers have liability insurance.


Likewise, Washington County's education social contract is not grounded in the belief that education is a "public good." A public good, by definition, cannot be supplied privately because there is no reasonable way to contract for service voluntarily. Police protection and local roads are public goods because they cannot easily be covered by voluntary user fees - imagine having a toll booth along every few hundred feet of road or police who only deter criminals that threaten fee-paying homes. Instead, those services are paid with taxes and their benefits flow to the entire community. But for most of human history, education has been provided on a voluntary, fee-for-service basis; indeed, every day, hundreds of the county's children are educated that way. Thus, the principle underlying the county's public education system cannot be that education is a public good.

The reason for the county's social contract on education is, I assume, because of "neighborhood effects" - the idea that a good school system and educated children benefit the entire community. For that reason, county taxpayers are to share fairly in paying the cost of schooling. Historically, that fair sharing has come through income and property taxes, so that each taxpayer's contribution reflects his wealth.

But the excise tax violates the "fair sharing" portion of that contract. People pay an additional tax for education if they either buy or sell a house in the county. So why should someone carry more of the county's education burden if that person is a newcomer, or a longtime resident who sells her home and moves away (the excise tax falls on both buyers and sellers), or a resident who moves from her apartment to a condo, or from a starter home to a bigger home, or from her longtime home to a retirement community cottage?

The answer, I assume people would say, is because the county's current growth has upset the original social contract and threatens to swamp taxpayers. But this answer does not stand up to historical fact. Washington County Public Schools' current enrollment is some 15 percent below the county's all-time high enrollment, set in the 1971-1972 school year, and is below the county's enrollment for the entire period from 1963-1964 to 1978-1979. Yet, while there are fewer public school students today than there were three or four decades ago, the number of county taxpayers has increased, and they have become wealthier. In 1970, the percentage of the county's population under age 18 was more than 40 percent; today it's below 25 percent. Meanwhile, county inflation-adjusted household income has grown more than 69 percent over that time.

Put simply, if the county could fairly share the cost of educating its children some three decades ago, why can't it do so today, when there are fewer children, more taxpayers (including all of the newcomers), and county households are more wealthy? And if the contract does need to be changed, why should people who buy or sell their houses pay a heavier burden while people who stay in the same house receive a tax break? Do the children of people who buy or sell their house consume more educational services than people who stay in one house?

Can supporters of the excise tax answer those questions? Or, do they believe the historical data are false? Do they, perhaps, believe that newcomers do not pay property and income taxes, or that newcomers' children depreciate schools and use teacher services and textbooks at a higher rate than incumbents' children?

Or, more likely, do excise tax supporters simply reject the "fair sharing" principle that has underlay Washington County public education for decades? If so, let them just say so plainly, and the county can consider whether it should abandon that principle.

Thomas A. Firey, a Washington County native, is managing editor of the Cato Institute's Regulation Magazine. Much of the data he cites can be found online at

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