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

Browse Search

CCM Economics, LLC Orange County Tax Equity Page 19 III. Tax Equity Study Outline When discussing equity, it is important to be sure to define one’s terms. As alluded to in section I, defining equity is inherently dependent upon one’s values and is therefore a normative issue. There are two broad ways though that equity vis-à-vis government spending and taxation is examined. The first is the ability to pay principle which states that households that have a larger ability to pay (i.e. high income) should pay a larger amount of taxes irrespective of the level of benefits that they receive in exchange. The second way is the benefits principle which states that households should pay taxes commensurate with the level of benefits that they receive.10 Residents of Orange County were divided up into 5 different geographic subgroups depending upon where they lived. These different groups are Chapel Hill, Mebane, Carrboro, Hillsborough, and Unincorporated which are citizens who reside in Orange County but not in a municipality. Furthermore, citizens of Chapel Hill and Mebane were further subdivided into citizens who reside in Orange County and those who resided outside of the county. The total amount of taxes paid from each of these 5 different areas was determined using data from various sources such as Orange County internal reports, municipal budgets, Census Bureau, North Carolina Department of Finance, etc. From here, one can easily calculate the amount of taxes paid per capita by dividing the total amount of tax from a jurisdiction and dividing by the population of that district. It should be noted that this does not mean that every citizen of that 10 Let us illustrate these two principles. Consider an example of a country with only two persons, one who earns $100,000 and one who earns $25,000, and only one government p rovided good—a park that costs $10,000 a year to maintain. According to the ability to pay principle, the government should charge the high wage earner a higher amount of taxes. We can assess an income tax rate of 9% on the high wage earner and 4% on the low wage earner. Under these rates, the high wage earner pays $9,000 in taxes and the low wage earner pays $1,000 so that the government can fund the yearly cost of the park. These rates are set irrespective of who actually uses the park. The benefit principle says whoever uses the park should pay for the park. Therefore, if both the high and low wage earner use the park in equal amounts, they should each pay $5,000 in taxes. This report states, to a degree, both of these methods and leaves it to the reader to assess which is the preferable method for distributing the assessment of taxation and government provided goods and services. 56