My Last Name Starts With a G (You'll need this information before completing the assignment)
ACIS 3314, Spring 2007 Activity #1Page 2 ACCT 5063 Activity #1: Mytown, USA Like many growing cities, Mytown’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. Mytown’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 bear the additional tax burden. Mytown is comprised of three demographic groups, each representing approximately one-third of the total population: retirees, workers, and students. As shown in the following table, each group’s share of the wage base, consumption base, and property base differs, as one would expect given typical life-cycle patterns of income production, consumption, and savings. Equal-size Demographic Group’s Share of Each Tax Base Demographic Groups Wage Base Retail Sales Real Property Retirees 5% 20% 60% Workers 90% 50% 40% Students 5% 30% 0% On average, retirees receive only 5% of the total wages earned by the citizens of Mytown. 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 Mytown 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 Mytown, 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 Mytown’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 sales. The third demographic group, students, accounts for only 5% of Mytown’s wage base. Most of these wages are earned from low-paying jobs in retail businesses around town. Despite the relatively low wages earned by students, they account for 30% of Mytown’s retail sales, largely due to their insatiable appetites for food, drink, and expensive textbooks. Most of this consumption is financed by student loans and, of course, parental contributions to the noble pursuit of education. Instructions and Requirements: Assume that you are a citizen of Mytown, USA, and that the demographic group of which you are a typical member depends on the first letter of your last name, as indicated below: If your last name begins with… You are a typical… A through F Retiree G through M Worker N through Z Student After receiving input from concerned citizens at the next town council meeting, the council will select one of the three alternative tax proposals described above. You plan to attend this meeting to state your position on which alternative should be adopted. Prepare a one-page written analysis supporting the alternative you believe should be adopted. This analysis should indicate why your chosen alternative is “best” and why the other two alternatives are not.