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Show CHAPTER IV USER FEE DESIGN CONSIDERATIONS In order to evaluate the various user fee alternatives, a set of evaluative criteria was needed. Those identified were: equity, economic efficiency, allocational effectiveness, administrative simplicity, and revenue generating potential. Through systematic application of these criteria, the different user fee alternatives were analyzed and evaluated. EQUITY Two facets to equity are fairness and redistribution. Fairness requires equal treatment of equals. Since this concept is generally accepted by society, fairness principles are concensus criteria. Redistribution, on the other hand, requires income transfers among groups; and no social concensus exists on the ideal division of income. Redistribution principles involve a conflict of interest among groups that pay or receive income. Shoup ( 1969) defines six characteristics of equity that pertain to consensus criteria as relevance, certainty, impersonality, continuity, uniformity of mispayment, and uniformity of cost compliance. Relevance suggests that individuals be equally circumstanced with respect to the conditions that the community believes should pertain to any given situation. A community might properly feel that water use charges should be based on the quantity of water used. In communities that meter water, this criterion would be relevant; in communities without a metering system, it would not be. Relevant circumstances need to be defined broadly enough so that impersonality is preserved and precise enough so that an individual can know in advance the consequences of any particular course of action. Certainty is important because an individual will want to be treated equally in successive periods, providing the same relevant circumstances pertain. Impersonality is important because an individual may prefer preferential treatment on an individual basis, but will appreciate impersonality as a general rule. Continuity implies that changes occur only concurrently with changes in relevant circumstances and that these changes would reflect proportionately. In other words, a small change in relevant circumstances would not lead to large changes in payments. Uniformity of mispayment, in principle, suggests that any payment error should be the same for all who make the payment. Uniformity of cost compliance means that the cost for an individual in complying with a law should be the same percent of his tax as it is for all others. Shoup also identifies five characteristics of equity for conflict of interest or redistribution of income criteria. Because of the conflict, criteria deemed good at some times are deemed bad at others. They consist of: ( a) Distribution of burdens progressively, and benefits regressively, by income and wealth....( b) Distribution of these benefits and burdens among households of like income or wealth to take account of type of income, size and composition of family, including age and occupation ( e. g., clergy) of members and use of income, ( c) Distribution of burdens and benefits by geographic area, principally to export burdens to other countries to the degree feasible, and, within the country, to favor depressed regions, ( d) Distribution of benefits or burdens in a manner that does not discriminate against ethnic, color, or status groups....( e) Distribution of tax burdens by methods that promote widespread tax consciousness ( in some nations the negative of this criterion is the accepted one) ( Shoup, 1969, p. 33- 34). These criteria can be used to analyze the characteristics of any tax instrument. In an analysis of taxes it is useful to consider incidence or who actually pays. The problem of incidence relates to the ability of a taxpayer to shift the burden of a charge to others. For the example of rented housing, if water rates are increased to a landlord, he may choose to increase rents to his tenants. The fairness and redistribution criteria enumerated could then be used to evaluate the equity of a given tax from information on who actually pays in the end. Fairness or equity are unscientific terms, but the perception of fairness is most important if any tax or fee is to be acceptable and successful. This section has identified several characteristics of charges which determine whether or not people will consider them fair. Some of these are universal standards; others are considered fair by one group but unfair by another, 17 |
