Exercise 5

Essay/Exercise # 5

Part 1______ (35 Points) __ (375 words minimum)

The City of Eternal Springs is a relatively affluent community with abundant natural resources and beauty such as nature/hiking trails, fishing and hunting, wineries, hotels, and tranquil settings. As such, it is a high demand tourism destination and is typically one hour from larger urban centers. Many of the wealthier residents live in gated communities or have large parcels adjacent to government owned open space so their need for parks is minimal.

While the community is relatively affluent, there is a segment that consists of service and blue-collar construction workers who are vital for supplying the community’s labor needs. These residents have poor access to community parks and retail establishments.

The City presently has $3,000,000 in excess reserves which would construct a new park in the area where lower income residents live when matched with a $3,000,000 federal grant – equaling a $6,000,000 new park project cost. However, a Walmart is proposing to install a new retail center in this distressed area and requires a $3,000,000 up-front subsidy. Thereafter, the revenue increase to the city would be $800,000 per year into its General Fund and future allocations of these funds would be subject to the annual appropriation process by the City Council.

What would be your recommendation to the City Council regarding building the community park in the more distressed area or assisting Walmart? Please draw upon social equity principles in your response.

Part 2 (35 Points) -(375 words minimum) and fill out the excel table.

California Citizens A are married with no dependents and have $85,000 per year in adjusted gross income. They pay rent of $30,000 per year, gasoline taxes and related climate change fees of $1.25 per gallon at 1,500 gallons per year ($1,800), and pay sales taxes equating to $700 per year. They do not have enough deductions to qualify for the itemized approach and therefore take the standard deduction of $24,400 for married couples.

California Citizens B are married with no dependents and have $100,000 per year in adjusted gross income. They “own” a home and pay $30,000 per year in house payments of which $23,000 can be deducted on Schedule A (Itemized Deductions) as mortgage interest expense and property tax expenses. Additional itemized deductions include state income taxes of $4,000 per year, state disability insurance (taxes) of $400 per year, and motor vehicle taxes of $800 per year. They also contribute $3,000 per year to charitable entities which qualify for itemized deductions and tax write-off.

What are the net federal and state taxes in terms of a percentage of Couple A, concerning net disposable income, after deducting rent? Remember, for taxable income purposes, rent is not a deductible item – renters pay taxes on AGI without the benefit of deducting rent.

What are the net federal and state taxes of Couple B, concerning net disposable income, after all itemized deductions?

Does the comparison between Couples A & B represent a progressive, proportional, or regressive x scenario?

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