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

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CCM Economics, LLC Orange County Tax Equity Page 32 county and municipal government spending and revenues, the county’s classification system was used and municipal spending was placed into the most appropriate general category (e.g. “Human Services”) or specific category (e.g. “Housing” which is a sub-category of “Human Services”). As the reader will note, the net summation of benefits excluding federal and state spending and taxes is slightly negative. This is due to a couple of factors. One of the categories under the benefits section is ‘Debt Service’. Debt service are principal and interest payments for county and municipal debt that was incurred in the past to pay for projects that have a long life— such as an arena, park, municipal building, street, etc. These projects are continuing to provide benefits to taxpayers today and these benefits are reflected in the value of the principal repayment. The interest paid however was excluded from the ‘benefits’ taxpayers receive since it is not a reflection of benefits received. Similarly, the county and cities have tax revenues received today that are being funneled into long term funds for use in future years. In short, these long-term funds are similar to a household’s savings account. As with interest payments, these ‘savings’ are not counted as benefits today—but they will become benefits in the futures as they are spent on the projects that they are being saved for. The larger issue of tax equity is apparent in the inclusion of the federal and state taxation and benefits which shows a fairly significant negative amount. This is due to the progressive nature of the income tax within the United States. Recall that approximately 45 to 47 percent of US households do not pay any income taxes, but almost all US households receive benefits from residing in the US. Therefore, the tax burden to provide benefits to all US households falls 69