Cloydtown Case Study
Activity #1: Cloydtown, USA[i]
Like many growing cities, Cloydtown’s expenditures for roads, schools, parks, law enforcement and other services have grown faster than its tax revenues. The town council estimates that $10 million of additional annual tax revenue is needed to balance the town’s annual operating budget. Although everyone on the town council agrees on the need for additional expenditures, there is widespread disagreement about how to raise the additional tax revenue. Three alternatives are under consideration—
1. 2% payroll tax on gross wages. 2. 3% sales tax on all retail purchases (food, clothing, books, clothing, etc.). 3. 10% increase in real estate property tax.
Cloydtown’s budget director estimates that the three alternatives are equivalent in the sense that each would generate approximately $10 million of additional tax revenue per year. However, these alternatives differ in terms of who would …show more content…
Instead, most of the income received by retirees is derived from investments and pension plans. Because retirees have already accumulated plenty of clothing, furniture and appliances, they account for only 20% of total retail sales by Cloydtown merchants (mostly groceries, pharmacies and restaurants). In contrast, because they have lived in the community so long and real estate values have appreciated over time, retirees own some of the most valuable houses and farms in Cloydtown, accounting for 60% of the total property tax base. In fact, some of the wealthier retirees own apartment buildings occupied by students.
The worker group is comprised of citizens in the 22 to 65 age group. Not surprisingly, this group accounts for 90% of Cloydtown’s wage base. Because many younger workers are now building their households and many have children to support, this group also accounts for a disproportionately large percentage of total retail
Like many growing cities, Cloydtown’s expenditures for roads, schools, parks, law enforcement and other services have grown faster than its tax revenues. The town council estimates that $10 million of additional annual tax revenue is needed to balance the town’s annual operating budget. Although everyone on the town council agrees on the need for additional expenditures, there is widespread disagreement about how to raise the additional tax revenue. Three alternatives are under consideration—
1. 2% payroll tax on gross wages. 2. 3% sales tax on all retail purchases (food, clothing, books, clothing, etc.). 3. 10% increase in real estate property tax.
Cloydtown’s budget director estimates that the three alternatives are equivalent in the sense that each would generate approximately $10 million of additional tax revenue per year. However, these alternatives differ in terms of who would …show more content…
Instead, most of the income received by retirees is derived from investments and pension plans. Because retirees have already accumulated plenty of clothing, furniture and appliances, they account for only 20% of total retail sales by Cloydtown merchants (mostly groceries, pharmacies and restaurants). In contrast, because they have lived in the community so long and real estate values have appreciated over time, retirees own some of the most valuable houses and farms in Cloydtown, accounting for 60% of the total property tax base. In fact, some of the wealthier retirees own apartment buildings occupied by students.
The worker group is comprised of citizens in the 22 to 65 age group. Not surprisingly, this group accounts for 90% of Cloydtown’s wage base. Because many younger workers are now building their households and many have children to support, this group also accounts for a disproportionately large percentage of total retail