Section 5: Illustrations of the Impact of Tax Adjustments on Representative Taxpayers

Lower Merion Township residents would be affected in different ways, depending on which option is chosen, and the person’s particular situation. While it is not possible to calculate all variables with precision, the comparisons are useful for illustrative purposes. The following types of taxpayers were used to illustrate the effect of the several options under consideration:

Table 5.1 - Illustrative Taxpayers
Taxpayer A: $100,000 multi-unit residence 1 Container Solid Waste Fee option selected $50,000 Earned family income 15% Federal income tax bracket	Taxpayer B: $400,000 single-family residence 3-5 Container Solid Waste Fee option selected $125,000 Earned family income 28% Federal income tax bracket
Taxpayer C: $600,000 single-family residence 3-5 Container Solid Waste Fee option selected $250,000 Earned family income 31% Federal income tax bracket	Taxpayer D: $1,000,000 single-family residence 3-5 Container Solid Waste Fee option selected $350,000 Earned family income 31% Federal income tax bracket

Table 5.2 shows the status of each of the four “typical” taxpayers under the assumptions in Table 5.1 under the current schedule of taxes and fees (and taking into account the federal income tax effect of deductible items):

Table 5.2 – Current Tax/Fee Burdens – Illustrative Taxpayers
Taxpayers -->	A	B	C	D
Real Estate Tax	$184	$690	$1,114	$1,497
Solid Waste Fee	192	322	322	322
Total - Non- EIT/NPT Taxpayers	376	1,012	1,436	1,819
EIT/NPT (.5% Rate) - Paid to Other Municipalities	213	494	863	1,208
Total - Current EIT/NPT Taxpayers	589	1,505	2,299	3,027
Note: Real Estate and EIT/NPT taxes take deductibility under Federal tax laws into account. Sources: Township data and analysis; US Internal Revenue Service, Publication 553 for tax rates.

As noted before, the Township specified three options for evaluation against the four illustrative cases, looking towards full implementation by 2005:

Option 1: Multi-phase increases in both real estate taxes and solid waste fees

• 2003: 9.0% Increase in real estate taxes and 10% increase in solid waste fees
• 2004: 8.0% Increase in real estate taxes and 10% increase in solid waste fees
• 2005: 2.0% Increase in real estate taxes and 8% increase in solid waste fees

Option 2: Multi-phase increases in real estate taxes

• 2003: 9.0% Increase in real estate taxes only
• 2004: 12.0% Increase in real estate taxes only
• 2005: 3.0% Increase in real estate taxes only

Option 3: Earned Income and Net Profits Tax, instituted in 2004 and fully effective in 2005

• 0.5% EIT/NPT on both residents and nonresidents
• Partially offset by $3 million in other tax reductions in 2004

For the purposes of this comparison, the solid waste fee portion of Option 1 anticipates a percentage increase in charges, without regard to whether they are generated by an increase in the per-container charges, by recourse to a fee based on container location, or a combination of both.

On the basis of the scenarios presented, and as shown in Tables 5.3 through 5.6, the imposition of an EIT/NPT on Township residents has varying impacts, depending on earned income and whether the taxpayer is currently employed in a jurisdiction which imposes an EIT/NPT on non-residents, as does the associated $3 million tax reduction. The illustrations below are based upon full implementation of each option for 2005, and assume that the $3 million tax reduction in Option 3 would be directed towards the real estate tax. Under that assumption, the real property tax on both residential and nonresidential property would be reduced by approximately 16.7%, and taxpayers now paying EIT/NPT elsewhere would in most cases see a net reduction in Township taxes.

The prospect of the $3 million reduction in existing taxes represents a starting point, and not an end. Depending on how events unfold, and decisions made by the Township, additional reductions might be possible. The uncertainties in terms of predictable revenue from the EIT/NPT, particularly in its first year, are such as to argue for caution in making large reductions on less than full information. The Township has made annual contributions from its fund balance to address operating deficits, and under Option 3 would continue to do so until 2004. That would have the effect of further eroding Township reserves and increasing the amount of new revenue necessary to restore them to levels which have been seen in the past.

Table 5.3 – Illustration of Option Impact – Taxpayer A
	Option 1	Option 2	Option 3
Persons NOT Now Paying EIT/NPT
Current Real Estate/Solid Waste	376	376	376
New Charges
Real Estate Tax	37	47	-
Solid Waste Fee	59	-	-
EIT/NPT	-	-	225
LESS: Tax Reductions	-	-	(31)
Total New Taxes & Charges	96	47	194
% New Taxes & Charges	25.49%	12.60%	51.68%
Persons CURRENTLY Paying EIT/NPT
Current Real Estate/Solid Waste/EIT/NPT	601	601	601
New Charges
Real Estate Tax	37	47	-
Solid Waste Fee	59	-	-
EIT/NPT	-	-	-
LESS: Tax Reductions	-	-	(31)
Total New Taxes & Charges	96	47	(31)
% New Taxes & Charges	15.95%	7.88%	(5.10%)
Note: Real Estate and EIT/NPT taxes take deductibility under Federal tax laws into account. Based upon Federal tax rates in effect for 2002. Sources: Township data and analysis; US Internal Revenue Service, Publication 553 for tax rates.

Table 5.4 – Illustration of Option Impact – Taxpayer B
	Option 1	Option 2	Option 3
Persons NOT Now Paying EIT/NPT
Current Real Estate/Solid Waste	1,012	1,012	1,012
New Charges
Real Estate Tax	138	178	-
Solid Waste Fee	99	-	-
EIT/NPT	-	-	456
LESS: Tax Reductions	-	-	(115)
Total New Taxes & Charges	237	178	341
% New Taxes & Charges	23.45%	17.55%	33.74%
Persons CURRENTLY Paying EIT/NPT
Current Real Estate/Solid Waste/EIT/NPT	1,468	1,468	1,468
New Charges
Real Estate Tax	138	178	-
Solid Waste Fee	99	-	-
EIT/NPT	-	-	-
LESS: Tax Reductions	-	-	(115)
Total New Taxes & Charges	237	178	(115)
% New Taxes & Charges	16.16%	12.09%	(7.83%)
Note: Real Estate and EIT/NPT taxes take deductibility under Federal tax laws into account. Based upon Federal tax rates in effect for 2002. Sources: Township data and analysis; US Internal Revenue Service, Publication 553 for tax rates.

Table 5.5 – Illustration of Option Impact – Taxpayer C
	Option 1	Option 2	Option 3
Persons NOT Now Paying EIT/NPT
Current Real Estate/Solid Waste	1,436	1,436	1,436
New Charges
Real Estate Tax	224	287	-
Solid Waste Fee	99	-	-
EIT/NPT	-	-	875
LESS: Tax Reductions	-	-	(186)
Total New Taxes & Charges	322	287	689
% New Taxes & Charges	22.45%	19.97%	48.00%
Persons CURRENTLY Paying EIT/NPT
Current Real Estate/Solid Waste/EIT/NPT	2,311	2,311	2,311
New Charges
Real Estate Tax	224	287	-
Solid Waste Fee	99	-	-
EIT/NPT	-	-	-
LESS: Tax Reductions	-	-	(186)
Total New Taxes & Charges	322	287	(186)
% New Taxes & Charges	13.95%	12.41%	(8.03%)
Note: Real Estate and EIT/NPT taxes take deductibility under Federal tax laws into account. Based upon Federal tax rates in effect for 2002. Sources: Township data and analysis; US Internal Revenue Service, Publication 553 for tax rates.

Table 5.6 – Illustration of Option Impact – Taxpayer D
	Option 1	Option 2	Option 3
Persons NOT Now Paying EIT/NPT
Current Real Estate/Solid Waste	1,819	1,819	1,819
New Charges
Real Estate Tax	301	385	-
Solid Waste Fee	99	-	-
EIT/NPT	-	-	1,225
LESS: Tax Reductions	-	-	(250)
Total New Taxes & Charges	399	385	976
% New Taxes & Charges	21.95%	21.19%	53.63%
Persons CURRENTLY Paying EIT/NPT
Current Real Estate/Solid Waste/EIT/NPT	3,044	3,044	3,044
New Charges
Real Estate Tax	301	385	-
Solid Waste Fee	99	-	-
EIT/NPT	-	-	-
LESS: Tax Reductions	-	-	(250)
Total New Taxes & Charges	399	385	(250)
% New Taxes & Charges	13.12%	12.66%	(8.20%)
Note: Real Estate and EIT/NPT taxes take deductibility under Federal tax laws into account. Based upon Federal tax rates in effect for 2002. Sources: Township data and analysis; US Internal Revenue Service, Publication 553 for tax rates.

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