7-a - Report on the Orange County Tax Equity Study

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CCM Economics, LLC Orange County Tax Equity Page ii Executive Summary This report is an attempt to measure the equity in taxation and government spending for citizens of Orange County and is based upon the Wicker Study from 1987. The Wicker Study examined the different levels of municipal and county taxes that citizens of Mebane, Carrboro, Hillsborough, and Chapel Hill paid relative to the levels of government provided benefits that they received. Citizens of Orange County who did not reside in a municipality were also examined. This report has updated and expanded upon the Wicker Study in an important way. A large portion of local government funding comes from state and federal governments. This fiscal federalism comes in many forms such as block and category grants. In essence, citizens are sending tax dollars to their local governments via federal and state governments. By ignoring state and federal government spending and taxation, one will get an inaccurate picture of local government spending and taxation. Intrinsically, one would be counting all local government spending as benefits while ignoring the taxes sent to local governments via the federalist taxation system. Budgets of local and county governments were examined in detail. This data was combined with data from other data sources from the federal and state level to determine how much, on a per capita basis, each citizen of the aforementioned municipalities is paying in taxes. This was then compared to the level of government provided benefits that each citizen on a per capita basis is receiving. Citizens of Orange County who do not live in a municipality were also studied. An online survey of Orange County citizens was also employed to understand which government provided goods and services are being utilized and by whom. Results indicate that on a per capita dollar basis, Orange County citizens are facing a slightly negative amount on net when it comes to comparing taxes paid to benefits received. However, there are two important caveats to this result. The first is that local municipal and county governments shift some of today’s tax revenues into reserve funds to pay for future expenditures. Due to the ‘snapshot’ methodology employed in this study, this would appear as ‘taxes’ being larger than ‘expenditures’—i.e, that there is a negative amount of net benefits received by Orange County Citizens. However, the shifting of current tax revenues into reserve funds is analogous to the way that a household shifts current income into a savings account to pay for future consumption. The second caveat is that the majority of Orange County citizens’ tax inequity comes from federal government spending and taxation patterns. For example, Chapel Hill citizens on a per capita basis pay almost $8,000 in federal taxes but receive only $3,000 in benefits from federal government spending. In short, if Orange County citizens desire to see a more equitable distribution of taxation and government spending, they should focus more on the policies of the federal government rather than state or local governments. 37