Of the many responsibilities the public sector has historically held, collection of taxes remains the least popular. Theoretically, most government services could be supported with other means, such as user fees, which would allow a reduction in general taxes. Redistribution (the transfer of tax revenue from one population to another by way of expenditures on services) or cross-subsidization would diminish as governments became more reliant on individual users to pay for individual services. The difficulty with such an approach to government finance lies in the nature of the services governments provide.

    County governments provide many services which are public in nature. Public goods include services such as law enforcement, a system of courts, and disease control. These and other county services share two common characteristics. First, it is impossible to measure the exact degree to which an individual benefits, thereby making user fees implausible. All individuals benefit when criminals are tried and incarcerated but measuring the extent to which any one individual benefits is impossible. Without the ability to measure benefit, price can not be determined. Second, any number of people can receive the service without diminishing the amount available for others to consume. A system of public parks, for example, can be enjoyed by many simultaneously and the level of enjoyment is not dependent on the number of people at the parks.

    Another reason for a general tax is the role of the County as a provider of services to low-income and at-risk populations. Programs directed at low-income individuals can not be financed through user fees because such individuals would be less likely to take advantage of services which they could not otherwise afford. User fees are inherently regressive, which is to say that those with lower incomes pay a larger proportion of their income on user fees than do individuals with higher incomes. Unlike the regressive user fee, the property tax is a proportional tax. Those with more property value pay more tax revenue than those with less property value while the distribution of benefits is not proportional to property value. The effect of this is that low-income residents are somewhat subsidized by higher income residents, assuming that a correlation between income and property value exists.

    The process that occurs at the individual level can also be generalized to the local level of government where redistribution is a direct function of the mechanism of taxation and the extent of property value differentiation. If one municipality has higher property values on average compared to another municipality, it will have higher property tax payments than the lower valued locality. Yet the wealthier is likely to demand the same or fewer of the County’s services, resulting in fewer expenditures made on its residents. A degree of redistribution results. In this manner, tax revenue can be thought of as being produced by local governmental units (cities, townships, villages) due to their geographic link to property value and jurisdictional boundaries.

    Redistribution occurs in all levels of government, between federal, state and local units as well as within governmental units. This model attempts to measure the level of redistribution among the cities, townships, and villages of Ingham County by estimating the average benefits received and taxes paid by the residents of each locality. Keep in mind that some benefits include legal mandates and some taxes include intergovernmental transfers for which the County has no jurisdictional control. The model is therefore only an estimate of the total level of cross-subsidization and not an estimate of the level of cross-subsidization which results from County policies.

    Redistribution is a direct result of socioeconomic inequalities in society as well as the policy objectives of elected officials who act on behalf of citizens. It is also a function of the manner in which our system of governance has been arranged whereby some programs and revenues are the result of state objectives. This model strives to be neutral and makes no ethical or political judgement as to the current level of cross-subsidization occurring in Ingham County. The model is designed as an informational tool which might or might not be used to guide policy decisions. Although based on 1996 data, the model can be replicated for past and future years. It also has the potential to be used to analyze the impact of major policy decisions.