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Let's dig a little deeper. The households in Allegan County can be divided up into three groups: wealthy, middle-class, and poor. There are 5,000 wealthy
Let's dig a little deeper. The households in Allegan County can be divided up into three groups: wealthy, middle-class, and poor. There are 5,000 wealthy households, 35,000 middle-class households, and 10,000 poor households. Everybody in a class has the same willingness to pay and the same income. For each wealthy household, income is $200,000 and WTP is $460 a year. For each middle-class household, income is $80,000 and WTP is $200. For each poor household, income is $40,000 and WTP is $70. An economist has been asked to suggest an annual tax on county residents to pay for the clean-up. The economist proposes a proportional income tax. That means every household will pay the same percentage of their income as a tax. So, if the tax rate is 1.5%, each wealthy household's tax will be .015 x $200,000 = $3,000; each middle-class household's tax will be .015 x $80,000, etc. Next questions: 3) What is aggregate household income for the county
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