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

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CCM Economics, LLC Orange County Tax Equity Page 2 income transfer programs such as social security, high income households receive a smaller payout as measured by before retirement replacement income than do low income households. Therefore, it’s possible to show that high income households receive fewer ‘benefits’ from government spending than other households might. In short, there is no easy way to measure tax equity. Returning to the previous example of federal AGI and taxes, one can easily argue that the top 1% of AGI earners need to pay a disproportionate large share of income taxes since they are earning a very large percentage of the adjusted gross income. One can just as easily argue that the top 1% is paying too much in tax since the top 1% are responsible for twice as much federal income tax as they earn in adjusted gross income. In the 1980’s, the county of Orange County, North Carolina commissioned a study by Wicker that examined the issue of tax equity within Orange County.3 Essentially, the Wicker study estimated how much people are paying in taxes relative to the amount of government services that they receive. The Wicker study examined the spatial source of various county revenues and well as the spatial recipients of different county services. In short, the study concluded that citizens of the unincorporated areas of Orange County paid less per capita in terms of taxes and received less in terms of benefits then of cities such as Chapel Hill which paid more in taxes and received more in benefits. It was estimated that citizens in the unincorporated areas paid $488 in taxes per capita and received $419 in benefits for a net negative outlay of almost $69. At the same time, citizens of Chapel Hill paid $855 in taxes per capita and received $946 in government services per capita for a net positive outlay of $90. This report seeks to update these numbers and use a different methodology to measure benefits and costs. 3 Wicker, “Tax Equity in the Financing of Local Government in Orange County, 1987-1988”, Published Report, 1989. 39