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Taxes and Big City Living

Over at New Geography, Eamon Moynihan argues in against letting the Bush tax cuts expire. He contends that "rich" is defined in nominal dollar terms for tax reasons, rather than in terms of purchasing power. Thus, someone living in a high-cost-of-living city like New York or San Francisco or Washington DC ought to be weary of attempts to raise taxes on people in higher tax brackets, because they themselves would be disproportionately impacted.

(from Flickr user davidboeke)

The argument is somewhat true, in theory, although the solution isn't lower income taxes for the rich. If it's true that purchasing power is actually lower for people in big cities than people doing similar work in smaller cities, then replacing income taxes with consumption taxes is one way to even the playing field. Although this is a complicated issue that I'm not getting into details about, suffice to say that it has some legitimate backers.

What's really at issue here for me is the idea that concept of a 'cost-of-living' adjustment and the role of purchasing power in different cities.

For example, I could look at my job and say my salary should be worth $10,000 more if I were in New York, but it would be worth $10,000 less if I were in Kansas City, given the cost of living in those places. The problem is that my job doesn't exist in either of those places - it exists in DC; so if I want to do it, then I need to be in DC. This is true for a lot of careers. If you want to work in high-tech, you should really be on the West Coast. If you want to do fashion, you better be in New York. If you're into oil and gas, Texas is your place. There are jobs in these places that simply don't exist in other cities.

Of course, some jobs do exist everywhere... doctors, lawyers, nurses, kindergarten teachers, etc. We can look at salaries of the same profession across cities to draw a conclusion like: nurses in Omaha have more purchasing power than nurses in DC, even though nurses in DC have higher nominal salaries. Nurses in DC also pay higher taxes because they're in a higher tax bracket. When you read it like that, it sounds like nurses in DC are getting a bad deal and that the tax system is unfair. But then you have to ask yourself: why aren't all those nurses flocking to Omaha?

Eamon Moynihan ultimately thinks that high cost-of-living in New York is the problem to be solved, writing:
And in the longer term, we need to determine why the cost of living in New York is so high and then implement the reforms necessary to fix the problem and give New Yorkers a standard of living that is competitive with rest of America.
I've argued before that New York (and Manhattan in particular) is uniquely attractive because no other place exists like it in America. True, every city has its own unique charm, but as far as build environment, culture, and lifestyle goes, many of them are virtually the same. Manhattan stands out as completely unique. If there were more Manhattans, it might spread out the desire of people and firms who want to be there, and eventually lower the sky-high price-tag in New York. For now, the standard f living in New York is low because the quality of the city is so high.


Donna said…
That's the price we pay New Yorkers for the wonderful accommodations we have.
Kristen said…
True, but more and more, Manhattan style amenities(arts, walkability, parks, boutiques) are showing up in other cities, with far less costs of living. I think once more of these places show up and mature, then prices will come down, classic supply and demand here.
Jeff said…
I just don't understand this idea of "high cost of living" and why people should get a tax break based on how they choose to spend their disposable income.
If you live in Manhattan, you are deciding to consume a certain lifestyle. You CAN live in Manhattan for the same price that you can live in Dallas. What you cannot do is live the exact same life, but isn't that the whole point? The flipside to this argument is that no matter how high my income, I cannot have certain things in Dallas that I had when I lived in New York. I cannot spend a beautiful fall day walking from the southern end of Manhattan to Columbia University, people watching, window shopping, grabbing a picnic lunch in the park. Most of those things are free or cheap. In Dallas, I can walk around and look at the pretty sections of town, but it doesn't change often enough to make it all that stimulating. In New York, the intangible benefits of living there are wrapped into the cost of an apartment. In other cities, all those costs are externalized. Anything I consume in Dallas, I pay out of pocket.
In life, most people want something for nothing, but for the most part, they're not good at getting it. People who move to places with "Manhattan-style amenities" quickly find that the manufactured city environment is a poor substitute for the real thing. Look no further than Victory Park in Dallas if you need proof.

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