As illustrated in the following table, Minnesota and Vermont have now adopted the Wisconsin circuit breaker approach. Oregon and the State of Washington have also shown a strong interest and probably will become the law in those two States next year.

Less sophisticated State plans for abating part of the property tax payment to avoid extraordinary tax burdens have been enacted by Utah, New Jersey, Maryland, and California.

We have a table here that summarizes the various efforts of States to come to the aid of the low-income homeowner.*

AN "IDEAL" STATE TAX RELIEF PLAN

Based on recent State experiences it is now possible to set forth the characteristics of an ideal" State property tax relief plan.

First, it should have broad beneficiary coverage. To insure equitable treatment for all residential property taxpayers, the tax relief plan should come to the aid of all overburdened property taxpayers—those under 65 as well as those over 65 and the renters as well as the homeowners.

Second, in order to gain legislative support you need adequate safe guards against abuse. To insure that aid goes only to the truly needy. all types of cash income, including social security, should be cranked into my compilation of family income and probably a dollar limit of $400 or $500 should be set on the amount of relief granted to any taxpayer. This is to prevent criticism that you might be subsidizing some elderly person who happens to live in a mansion. So if you have a top cutoff point of $400 or $500, there is a safeguard there.

Third, and this is the most difficult thing, you need an efficient tax relief formula, one that can shield the low-income householders on the one hand and their interest and yet minimize the drawdown on scarce State resources.

One way to determine extraordinary burden would be to grant relief only on that part of the property tax payment that is in excess of cav 8 percent of the household's total money income. As previously noted. this approach would direct aid only to families in greatest need, bearing in mind that the average family burden is around 4 percent. The cost of such a program would probably run in the neighborhood of $300 to $400 million for the 50 States.

A more sophisticated formula would grant relief if the local residential property tax exceeds a certain percentage of the family's Federal or State income tax payment. For example, the average family today turns over about $2.50 to the Federal income tax collector for each $1 it turns over to the local residential property tax collector. Thus, we could argue that a family should certainly be entitled to property tax relief if the tax on its residence exceeds the family's Federal income tax liability.

It must be noted that before a family could receive tax relief under this approach, linking it to a State or Federal income tax schedule, it would be absolutely necessary to compute their Federal income tax liability on the assumption that all cash income is counted in the Federal tax base. You would have to count in that social security and veterans' retirement payments and so on.

*See appendix 1, item 2. p. $21.

By linking the tax relief formula to a State or Federal income tax schedule, it is possible to completely shield the incomes of low-income families from the property tax collector's reach or at least make a complete rebate. It also recognizes family size in the property tax relief program because the income tax is geared to personal exemptions.

We estimate that it would cost approximately $400 to $500 million to finance this more sophisticated type of property tax relief.

Now you could use various formulas. The one that I use here is pretty stringent. If you said, well, any family that had to turn over as much as half or more to the local property tax collector as it turns over to the Federal should be granted relief. Then the price tag would jump from about $400 to $500 million to about a billion.

I would like to express my personal view, not the commission's, with respect to the role that the National Government might play in this field. The Federal Government could hurry history along by providing a financial reward to those States that extend property tax relief to low-income families. The Federal incentive might well take the form of reimbursing the State for say one-half of the cost that it incurs in taking such remedial action. Corrective action must. be taken-an affluent society has no excuse for putting this type of tremendous burden on very low-income householders in order to finance its schools and local governments.

Thank you.

Senator Moss. Thank you very much, Mr. Shannon.

I was particularly interested in that description of the Wisconsin circuitbreaker. That seems to be an equitable and relatively simple way of relieving those who are pressed most by this local property tax. I think there is general agreement that this is one area where we must find relief.

What would be your response to those who say that instead of starting a new series of tax variables that make the thing more complicated that we attack the problem simply by getting more money to the elderly people, better income, and then let them pay all their taxes like anybody else? Do you think that is feasible?

Mr. SHANNON. It could be feasible. I do believe that that approach, however, is much more expensive. Any general scheme of inflating the incomes of the elderly will be very costly and the price tag alone will tend to deter congressional action.

Cost: $500 MILLION

In the meantime by using this very sophisticated "rifle" approach you can minimize the drawdown on the Federal Government's resources. For approximately a half billion dollars-a cost that could be shared by the Federal or State Governments-you could make sure that no lowincome person in the land had to experience an extraordinary property tax burden, but it will require these technical adjustments in the tax field and this is one of the prices you pay for trying to develop more equity.

Senator Moss. Do you think this relief afforded by this program to the elderly low-income taxpayers might cause the cities to raise their taxes sharply since there is little pressure now on the low-income group?

Mr. SHANNON. I suppose that if you had a micrometer and could measure all these nuances you might detect some reduction in pressure as far as the city council or the school board is concerned. The type of relief that we are talking about here is rifled in on the very low income so that the middle and upper incomes and the business firms will still pay the tax and pay any increase in the tax. As a result, I don't think that you will have an undue diminution of public interest in the local tax and budgetary process while at the same time achieving a far more equitable distribution of the local tax load.

Obviously, if you extended this form of tax relief across the board, it would be equivalent to having the local government back a truck up to the State treasury or the Federal Treasury. So you do have to put income constraints, but in the limited context that we have been talking about I don't think you would see any sharp reduction in citizen interest in the fiscal affairs of the local government.

Senator Moss. Thank you, Mr. Shannon. You have given very interesting testimony and some information and suggestions that this committee would like to consider. It has been helpful to have you come and testify before us and we appreciate it.

We terminated just about right. Those three bells mean I have a live quorum on the floor. So we are now in recess until tomorrow morning at 10 o'clock.

Mr. SHANNON. Thank you, Mr. Chairman.

(Whereupon, at 12:08 p.m., the subcommittee recessed, to reconvene at 10 a.m., Friday, August 1, 1969.)

ECONOMICS OF AGING: TOWARD A FULL SHARE IN

ABUNDANCE

(HOMEOWNERSHIP ASPECTS)

FRIDAY, AUGUST 1, 1969

U.S. SENATE,

SUBCOMMITTEE ON HOUSING FOR THE ELDERLY

OF THE SPECIAL COMMITTEE ON AGING,

Washington, D.C.

The subcommittee met at 10:10 a.m., pursuant to call, in room 4200, Senate Office Building, Senator Frank E. Moss (chairman of the subcommittee) presiding.

Present: Senators Moss, Gurney, and Saxbe.

Committee staff members present: William E. Oriol, staff director, and John Guy Miller, minority staff director.

Senator Moss. The subcommittee will come to order.

This is the second day of our hearings on the homeownership aspects of the economics of aging. This is based primarily on a task force report which was made for this committee. This is the Housing Subcommittee so we are concerned with the housing problems of the elderly. We had some very excellent testimony yesterday and we look forward to a continuation of the fine caliber of response today.

Our first witness this morning will be the Honorable Sherman Unger who is General Counsel of the Department of Housing and Urban Development. We will be pleased to have you proceed as you wish, Mr. Unger. Would you identify for the record the gentlemen who

accompany you.

STATEMENT OF HON. SHERMAN UNGER, GENERAL COUNSEL, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, ACCOMPANIED BY HILBERT FEFFERMAN AND WILLIAM D. HUGHES

Mr. UNGER. Good morning, Senator.

On my left is Hilbert Fefferman of the Office of General Counsel, and on my right, William Hughes who works with our Department on programs of housing for the elderly.

I am pleased to have this opportunity to appear before your sub

committee.

Yesterday Mrs. Marie McGuire, our assistant for Problems of the Elderly and Handicapped, furnished you detailed information on housing programs for the elderly administered by the Department of Housing and Urban Development, along with background data. This morning my prepared testimony will cover the several specific questions you asked of our Department. I will also try to answer any additional questions the chairman and the members may wish to ask. First, you asked whether departmental policy encourages the elderly to continue or to undertake homeownership or to move from large to smaller homes.

We neither encourage nor discourage any of these changes for their own sake because too many factors should enter into the decision of the individual elderly person to move. These include financial and physical capacity to maintain the present home; the availability of cheaper or more suitable housing in the old neighborhood or in new acceptable locations; and personal preferences, such as a strong attachment to the old home, garden and furniture, or a strong desire for smaller or easier-to-maintain quarters.

Our basic policy is to increase the overall supply of housing suitable for the elderly, including units which low- and moderate-income persons can afford. The aim is to permit the individual to choose among types of homes and types of tenure, including fee ownership, cooperative or condominium ownership, and rental.

HELPING THE HOMEOWNER

Second, you asked how existing Federal programs, especially those enacted last year, may be used to help continue or provide homeownership, and whether additional Federal legislation is needed for this purpose.

Our programs, which are described in detail in the materials submitted yesterday, contribute to this purpose in several ways: (1) They are intended to increase the supply of housing suitable for the elderly: (2) they provide interest rate subsidies making it possible for lowerincome elderly to acquire homes: and (3) they provide grants and low-interest-rate loans for the rehabilitation of existing homes in areas being, or to be, upgraded.

The FHA section 235 homeownership program enacted in 1968 is especially significant in that it permits interest rates to be reduced to as low as 1 percent to enable lower income persons to acquire a new home or an ownership interest in an apartment which is part of a cooperative or condominium.

Another 1968 provision authorized a new type of relocation payment to homeowners displaced as a result of HUD programs. The owner of the home which is taken may find that the amount received for it is not enough to pay for a modest home elsewhere in the community. This often happens to the elderly when the value of their homes has declined as their neighborhood became blighted.