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

Browse Search

CCM Economics, LLC Orange County Tax Equity Page 42 Appendix A In order to determine the true amount of government provided goods and services citizens are receiving and paying for, it is helpful to calculate how much citizens pay in federal, state, and local taxes and how many of these upper level government taxes are transferred to the local governments. Consider the simplifying example of a county that consists of 100 people who each pay taxes of $100 to the federal government, $25 to the state government, and $10 to the local government. These citizens have a total tax bill of $135. Assume that the local government provides a service for each citizen that costs $50. However, not all of the taxes paid to the federal and state tax governments are used at the federal and state level. Suppose that the federal and state governments transfer $30 and $10 respectively to the local government to help fund the local government provided service that costs $50. In short, the federal and state governments are serving as a ‘tax collector’ for the local government. There would be no difference between the federal and state governments collecting $125 in taxes and transferring $40 to the local government or the federal and state governments collecting $70 and $15 in taxes respectively and having the local government collect $50 in taxes. 79