Military pension bill deserves further study

Maryland is full of university-educated economists. I suspect any of them who read The Baltimore Sun’s recent editorial regarding the Keep Our Heroes Home Act cringed at your logic (“Should Maryland give a $50M bonus to military retirees?” Feb. 17). Here is the outline of the correct analysis: First, provide an estimate of the number of military who would remain in Maryland because of this proposed tax change. Next, calculate the average income of this group. Then, evaluate whether the economic impact of this group staying in Maryland exceeds the cost of the lost taxes. This group will still be paying sales tax, property tax, gas, local, and other taxes. The group will be spending money in the local area, supporting Maryland businesses.

There are formulas that economists use to derive the total value of the economic impact. They can also calculate the value of the taxes that will be generated as a result of this spending. If the cost exceeds the benefit, then we should not give this tax break. I suspect the analysis will show that there is a cost to the state income tax that exceeds the benefit. However, when you add in all the other taxes paid directly or indirectly, I suspect the state comes out far ahead.

There is another element that should be done: a sensitivity analysis. With that, you vary the proposal to see at what level the maximum benefit is achieved. For this case, you might want to see the impact of a $15,000 break, a $25,000 break, a $35,000 and a $50,000 break. Some polling would be needed to see how this would influence a retiree’s choice to stay in Maryland.

If you want to argue that we should do this analysis before we start changing tax law, I will agree. But to claim that this will hurt Maryland before doing any analysis is just hand-waving. Let’s make use of some of these economic departments.

— William Hettchen, Ellicott City