Adjust Tax Rate Based on Location? (1 Viewer)

[RightinNYC]

Should the federal tax rate be adjusted based on someones location?

Here's the general premise:

Where you live has a huge impact on what impact your income actually has. Someone considered very wealthy in one area might only be middle or lower class in another area. For example, someone earning $75,000 in Houston would need to make nearly $150,000 to enjoy the same standard of living in New York.

What is the result of this?

Because federal tax rates are standardized, we see people living in areas with high COL's who have drastically less disposable income than those living in areas with low COL. Two people making $80,000 are both paying 28%, even though one might be considered rich in Houston while the other is lower middle class in nyc. An entry level college graduate making $50,000 in NYC is taxed like he has a salary above that of the average family nationwide, but is barely able to pay for rent.

So, does anyone think that this is a semi-plausible idea that could/should be addressed?

 

[PeteEU]

It cant be addressed really via the tax system. The problem is housing costs and thats partly based on some sort of goverment controlled "free" market. The price of basics like food and water and even uttilities are the same "relatively", but housing is not.

 

[RightinNYC]

It cant be addressed really via the tax system. The problem is housing costs and thats partly based on some sort of goverment controlled "free" market. The price of basics like food and water and even uttilities are the same "relatively", but housing is not.

By no means is it limited to housing. The cost of everything changes significantly, from food to electricity to entertainment to gas to services such as dry cleaning or schooling.

 

[Real Korimyr #9]

I'm sympathetic to this, seeing as I'm about to move from somewhere with a low COL to somewhere with a much higher one, but there's just no way I can see that this can be implemented without making a mess of things.

Cost-of-living is too variable, and I believe it would overcomplicate our tax code more than it already is.

 

[RightinNYC]

I'm sympathetic to this, seeing as I'm about to move from somewhere with a low COL to somewhere with a much higher one, but there's just no way I can see that this can be implemented without making a mess of things.

Cost-of-living is too variable, and I believe it would overcomplicate our tax code more than it already is.

That was my first thought, as I was mostly thinking of it in terms of an idealistic solution. But the more I thought about it, the more plausible it seemed. Currently, the federal government has standardized COL tables for nearly every major metropolitan area that it uses to determine salary for federal employees. Although all federal employees are paid the same base salary, they receive up to 30% of their base pay in "location bonuses" depending on where they live.

If the godawful federal bureaucracy can manage to do that quite simply and effectively, I feel like the tax code could implement it (as part of some much needed reforms and simplification.) You already have to denote where you work/live for tax forms, and file a separate return for living in places like NYC, so why not a simple multiplier that could be applied to the thresholds for % increases based on a standard COL adjustment?

 

[PeteEU]

By no means is it limited to housing. The cost of everything changes significantly, from food to electricity to entertainment to gas to services such as dry cleaning or schooling.

Actually not exactly true.

Food prices in Houston vs New York are similar, and one could probally find cheaper prices in New York due to the higher traffic and bigger competition. And as foodstuffs are a small part of the cost of living in the western world (or should be), then the price of foodstuffs does not have that big an impact on the standard of living... relatively speaking.

Electricity prices depends on outside influences mostly and are for the most part the same. It also depends on regulation by the state.

Entertainment.. depends what we talk about. Cable tv? Movies? Theatre? Hard to compare New York Theatre and Houston Theatre. Cable TV depends on how advanced a city is in laying down cables. Movies... a theatre is a theatre. The only thing that could make the price of a movie ticket more expensive in New York is the cost of the housing the movie theatre and the wages paid to employees, who have higher wages due to higher living costs, which is mostly due to higher housing costs.

As for gas prices... chances are that a New Yorker has on average less cars than a person in Houston, so gas prices for cars will not be as big a burden for a New Yorker. I mean who in thier right mind would drive a car in New York if they could avoid it? That goes for most major cities with very well developed subway or public transport systms. On the other hand, heating fuel is needed much more in New York than in Houston. But again, prices are determined by world markets not by local goverments (unless they have a fuel tax in one of the cities of course).

Schooling.. yes and no. Private schooling is probally more expensive in New York, because the cost of living is higher and that is mostly based on rents/housing prices. Public schooling is the same everywhere.. just the quality is different.

Everything connects to housing costs as it takes the biggest chunck of ones pay check each month.

Adjusting tax rate based on location can only be done to either encourage people moving to an area or "forcing" people away from an area. It cant be done to regulate the cost of living.

 

[PeteEU]

That was my first thought, as I was mostly thinking of it in terms of an idealistic solution. But the more I thought about it, the more plausible it seemed. Currently, the federal government has standardized COL tables for nearly every major metropolitan area that it uses to determine salary for federal employees. Although all federal employees are paid the same base salary, they receive up to 30% of their base pay in "location bonuses" depending on where they live.

If the godawful federal bureaucracy can manage to do that quite simply and effectively, I feel like the tax code could implement it (as part of some much needed reforms and simplification.) You already have to denote where you work/live for tax forms, and file a separate return for living in places like NYC, so why not a simple multiplier that could be applied to the thresholds for % increases based on a standard COL adjustment?

But why does the goverment have the cost of living adjustments? Because the cost of housing is different depending on the city/area and has to be adjusted for. You cant expect a goverment employee in New York to get the same standard pay as one in a city or state where the cost of living is low. The person in New York would be "poor" and struggle, where as the guy living in a low cost of living area, would live like a king.

 

[RightinNYC]

Actually not exactly true.

When debating with you, I try to refrain from tossing out the "But you're from Europe and don't know what it's like in America" line because I don't want you to think I'm dismissing your viewpoint (which I'm not), but in this case, it sort of fits.

I don't know how to say it any differently, but the majority of your statements are wrong.

Food prices in Houston vs New York are similar, and one could probally find cheaper prices in New York due to the higher traffic and bigger competition.

No, they're not. On an index where the US as a whole is 100, NYC has a food cost of 137 while Houston is 94.

And as foodstuffs are a small part of the cost of living in the western world (or should be), then the price of foodstuffs does not have that big an impact on the standard of living... relatively speaking.

Again, you're wrong. Food and drink are a full 15% of most families budgets, even larger in cites.

FAQ: What Percentage of Our Income Should We Budget for Each Expense Category?

Electricity prices depends on outside influences mostly and are for the most part the same. It also depends on regulation by the state.

Again, completely wrong.

Utilities in NYC are 156, while utilities in Houston are 96.

Entertainment.. depends what we talk about. Cable tv? Movies? Theatre? Hard to compare New York Theatre and Houston Theatre. Cable TV depends on how advanced a city is in laying down cables. Movies... a theatre is a theatre. The only thing that could make the price of a movie ticket more expensive in New York is the cost of the housing the movie theatre and the wages paid to employees, who have higher wages due to higher living costs, which is mostly due to higher housing costs.

This would fall under "Miscellaneous," where once again, NY is drastically higher than Houston, 134 to 96.

As for gas prices... chances are that a New Yorker has on average less cars than a person in Houston, so gas prices for cars will not be as big a burden for a New Yorker. I mean who in thier right mind would drive a car in New York if they could avoid it? That goes for most major cities with very well developed subway or public transport systms. On the other hand, heating fuel is needed much more in New York than in Houston. But again, prices are determined by world markets not by local goverments (unless they have a fuel tax in one of the cities of course).

Again, this is not really true. Fuel prices vary drastically throughout the country. And even with the decreased car usage in NYC, it still significantly outpaces Houston 119 to 103.

Schooling.. yes and no. Private schooling is probally more expensive in New York, because the cost of living is higher and that is mostly based on rents/housing prices. Public schooling is the same everywhere.. just the quality is different.

It's not just primary education, but secondary as well. The costs for that are drastically higher in NY than in TX.

Everything connects to housing costs as it takes the biggest chunck of ones pay check each month.

It takes the biggest individual chunk at 32%, yes. But by no means is it the ONLY important factor. It's less than 1/3 of the cost. So your claim that it's the only important one is fallacious.

Adjusting tax rate based on location can only be done to either encourage people moving to an area or "forcing" people away from an area. It cant be done to regulate the cost of living.

I don't see where anything you've stated has proven this statement.

(Above statistic were garnered from here New York, New York (NY) Houston, Texas (TX) Detailed Profiles - travel and real estate info, jobs, hotels, hospitals, weather, schools, crime, ... . I can provide more sources if you like.)

 

[PeteEU]

When debating with you, I try to refrain from tossing out the "But you're from Europe and don't know what it's like in America" line because I don't want you to think I'm dismissing your viewpoint (which I'm not), but in this case, it sort of fits.

Yes its different between the US and Europe, no doubt about that, but the basics are still the same as your own links prove. Housing will always be the biggest drain on a normal household (how much is different), with fuel/transportation next and food/clothing after that and in the US healthcare somewhere in between.

No, they're not. On an index where the US as a whole is 100, NYC has a food cost of 137 while Houston is 94.

Could have something to do with the higher housing costs as I already stated? And considering that later I state the difference in housing costs between the 2 cities, that "gap" is small compared to said housing cost difference.

Again, you're wrong. Food and drink are a full 15% of most families budgets, even larger in cites.

Yes and no. As you see from your own numbers, that Americans eat out around 40% of the time. Now eating out is much more expensive than eating in. I dont know the European number, but I would bet that it varies quite a lot depending on location and income. Spanish for example, eat out quite a lot, but then again its rather inexpensive, where as danes dont eat out a lot, as its expensive. The grey area is of course "take out" :lol: .. is that eating in or out?

Utilities in NYC are 156, while utilities in Houston are 96.

This would fall under "Miscellaneous," where once again, NY is drastically higher than Houston, 134 to 96.

You are correct, if the website is correct. But why is there such a big difference?... your own link provides the answer..

Housing 68.1 in Houston but 243.1 in New York. This is a HUGE difference, and as rent for business and people is a biggish issue on the monthly income, then well. Higher housing costs, means higher prices relatively, and that means workers demand higher paychecks to sustain them.

Again, this is not really true. Fuel prices vary drastically throughout the country. And even with the decreased car usage in NYC, it still significantly outpaces Houston 119 to 103.

Not that big a difference really. And yes fuel prices do vary, depending on where in the country you are, but its not huge differences.. you dont pay 1 buck a gallon in Houston but 7 bucks in New York do you now?

It's not just primary education, but secondary as well. The costs for that are drastically higher in NY than in TX.

Because housing and wages are higher...the schooling is the same in principle.

It takes the biggest individual chunk at 32%, yes. But by no means is it the ONLY important factor. It's less than 1/3 of the cost. So your claim that it's the only important one is fallacious.

Did I claim that, if so I am sorry that was not what I meant. I believe I stated that housing is the single biggest burden on a monthly pay check, and I believe I am correct in that assertion.

Plus your numbers are no defined on what area of the country you are in. 32% on the "average", but is New York "average" or above "average"?

Lets say that in New York, an "average" New Yorker has to use 50% of his monthly income on housing, but in Houston its only 15%.. hypothetically of course.

I know from Denmark, a person living in the main cities use a larger part of thier monthly income on paying rent, where as people who live in the suburbs or "out in the country" use less per month. But for those not living in the cities, transportation costs are much higher (we use bicycles and public transport in cities)... Its so crazy that a person can save money by working in Copenhagen, but either living in Sweden or 100 to 150 km away "in the country" in a cheap home. Granted the 3 hour commute sucks but still.

But it still does not change the idea you floated. If you give tax breaks or similar to New Yorkers for the "cost of living", then more and more people will flood to New York. Likewise if you raise taxes in Houston to push up prices to a more New York levels, then people will leave Houston. The reason Houston is "booming" right now is because of very cheap housing, which in turn gives cheaper everything. Only thing that then is needed are jobs.

I just dont seen any arguments on how such a system would work. Giving employees COL allowance is very different than giving a whole area or city COL breaks based on some sort of formula.. the economical and social impact can be huge.

 

[SFLRN]

Should the federal tax rate be adjusted based on someones location?

Here's the general premise:

Where you live has a huge impact on what impact your income actually has. Someone considered very wealthy in one area might only be middle or lower class in another area. For example, someone earning $75,000 in Houston would need to make nearly $150,000 to enjoy the same standard of living in New York.

What is the result of this?

Because federal tax rates are standardized, we see people living in areas with high COL's who have drastically less disposable income than those living in areas with low COL. Two people making $80,000 are both paying 28%, even though one might be considered rich in Houston while the other is lower middle class in nyc. An entry level college graduate making $50,000 in NYC is taxed like he has a salary above that of the average family nationwide, but is barely able to pay for rent.

So, does anyone think that this is a semi-plausible idea that could/should be addressed?

The first problem, if one lowers taxes for one group then it will have to raise taxes on all those other groups, assuming you plan to keep government tax revenue the same. Why penalize everyone who chooses to live in cheaper housing? This makes it rather politically difficult to acheive.
Secondly, this would create a stronger incentive to go into largely densely populated areas that suffer congestion problems already. Providing a monetary incentive such as this would exacerbate these problems by creating a larger inflow of people into said areas. The general reasoning being, that if living in New York would be as cheap as living in a small town then there would be a number of people who would then choose to move into New York, whether it be the higher costs in their town or the fact that living in New York is more affordable.
This would then of course subsequently raise the prices on the limited housing stock because an increased demand (As one can imagine there is very little room for the housing and rental market to expand in New York).
The tax would then have to be subsequently raised on other groups and lowered for the other group.
Also, those in higher COL areas tend to make more than people, in lower COL areas with similar jobs, regardless of if they are private or public sector employees. This would help offset some of the higher COL problems.

 

[Synch]

You shift the demand for housing to the right in those areas, therefore increasing price, which creates more tax deductions until you're up to the point of no taxes, or the government handing out free money..

It's a slippery slope bound to cause more pernicious problems than the currently perceived injustices.

Expensive housing is a price you pay for work availability/quality public education.

 

[ALiberalModerate]

By no means is it limited to housing. The cost of everything changes significantly, from food to electricity to entertainment to gas to services such as dry cleaning or schooling.

The tax system more or less already does this. Things like childcare expenses and interest on a mortgage are already deductable. Usually areas with higher costs of living are places where people would rather live. People who live in coastal areas pay a premium to live near the coast. Conversely, people who live in central Nebraska get a lower cost of living for living in a place like central Nebraska.

In order for tax rates to be based on location, tax rates would have to be increased across the board to make up the difference. In order for someone to pay less as a percentage of their income just because they live in a place like NYC, someone else is going to have to pay a higher percentage of their income in taxes to make up the difference.

 

[Stace]

Electricity prices depends on outside influences mostly and are for the most part the same. It also depends on regulation by the state.

I just wanted to address this one part to start with, since it's something I so recently took a look at. Electricity costs can vary greatly throughout one state. My husband and I just got back from visiting his family, who live in Jacksonville, NC. We were trying to explain his grandmother's electric bill to her, as they recently made some changes to how they bill folks. Anyway, we got home and I took a look at our latest electric bill. The funny thing is, we live in an area that has a much higher cost of living (Charlotte, NC). Yet, even though we used MORE electricity than Granny, HER bill was more than ours. Go figure.

Anyway, just wanted to point out that they are NOT the same for the most part.

 

[PeteEU]

I just wanted to address this one part to start with, since it's something I so recently took a look at. Electricity costs can vary greatly throughout one state. My husband and I just got back from visiting his family, who live in Jacksonville, NC. We were trying to explain his grandmother's electric bill to her, as they recently made some changes to how they bill folks. Anyway, we got home and I took a look at our latest electric bill. The funny thing is, we live in an area that has a much higher cost of living (Charlotte, NC). Yet, even though we used MORE electricity than Granny, HER bill was more than ours. Go figure.

Anyway, just wanted to point out that they are NOT the same for the most part.

Actually its not that odd from state to state, but within a state it sounds a tad odd and frankly wrong (especially considering it was an old lady). Most industrialised countries have regulation in place to prevent price gauging and profitering by electircal companies, plus to provide electricity for all who need regardless of location, economic stature and age. Now these regulations have been slowly eaten away in some parts of the US from what I hear and read, with "liberalisation" of electricity markets (Enron and California) or the selling off of state owned power grids to private companies (think it was Montana) and almost all have caused massive price raises. With your situation it might be prudent to ask the hard questions of your politicians for allowing such a huge difference in power prices within the state, and mentioning the elderly never hurts

But in the end electricity is one of the household costs that we can regulate easily, plus is a rather small note on the whole household cost bill. House prices and rent is not something we can regulate ourselvs by any means and is still the single largest post in the cost of living. I mean its not easy to move from a high COL area to a lower, as it require first you can sell your house (if you own) plus find a new job and all the cost involved in moving. PLus if you are a familly then there is the other (better? ) half to think about, children and so on. While Americans are extremly mobile compared to Europeans, it still aint that easy.

A tax credit or break for those living in high COL areas would only mean more would move there and prices would go up and so on.. as I already mentioned.

 

[SFLRN]

Actually its not that odd from state to state, but within a state it sounds a tad odd and frankly wrong (especially considering it was an old lady). Most industrialised countries have regulation in place to prevent price gauging and profitering by electircal companies, plus to provide electricity for all who need regardless of location, economic stature and age. Now these regulations have been slowly eaten away in some parts of the US from what I hear and read, with "liberalisation" of electricity markets (Enron and California) or the selling off of state owned power grids to private companies (think it was Montana) and almost all have caused massive price raises. With your situation it might be prudent to ask the hard questions of your politicians for allowing such a huge difference in power prices within the state, and mentioning the elderly never hurts

But in the end electricity is one of the household costs that we can regulate easily, plus is a rather small note on the whole household cost bill.

Just because we can regulate it easily does not mean we should. The reason electricity costs are relatively high is the fact that it takes massive investments into infrastructure for building and maintaining a power grid. This would also explain why there are not as many competitors in providing such electricity. However, as you lessen regulation the easier it will be for these companies to make a profit and thus more firms will enter the market. Furthermore, most government attempts to prevent "price gouging," like price ceilings, result in shortages and worse service compared to service with no price ceilings. Companies will still work to maximize their profit regardless of regulation. With regulations mostly just shift how they go about doing it. Regulation in many cases does not stop the problem it attempts to attack, it just rearranges how firms work or creates another problem in the process.

 

[Stinger]

Should the federal tax rate be adjusted based on someones location?

Absolutely not, first you wouldn't pass the equal protection clause. Second cost of living is a market driven force, government shouldn't interfere by playing with the tax code, when the COL gets to high people won't pay it anymore and it will come back down to keep them there.

 

[PeteEU]

Just because we can regulate it easily does not mean we should. The reason electricity costs are relatively high is the fact that it takes massive investments into infrastructure for building and maintaining a power grid.

Yes and no. I consider the US a first world country, which means its electricity infrastructure like most modern countries is almost complete and especially in the cities. So for the most part its maintaining and renewal of said infrastructure and this has not been done to US goverment standards for decades, last I read up on it. And as I understand it Stace mentioned 2 cities or big town, not small out of the way hick towns where cousins marry cousins Hence the infrastructure should be in place. What I suspect is that the company is price discriminating pure and simple. There is enough distance to do so, so why not. If the people of one city dont care to protest on higher prices (or dont know their prices are higher), then why lower them? Its a classicly economic ploy, most often used across borders between countries. Example.. 1 gallon of Cola cost say 1 buck in X country, but if you go across the border its 4 bucks.

The power company is legally with in its right to do so, just dont make it morally right to do. Heck they might have gone so far to discriminate on consumption. If the granny does not use much power, then she pays premium for that power, where as Stace might use loads of power and gets a discount.. who knows what the power companies price structure is without Goverment oversight.

This would also explain why there are not as many competitors in providing such electricity. However, as you lessen regulation the easier it will be for these companies to make a profit and thus more firms will enter the market.

No wrong again. Most power companies were started by goverments, and later privatized. And for a good reason. Removal of regulation will not put new companies in the field, because of the insane upstart costs today. It costs billions to start a new power company if said power company wants to generate its own power and not buy it from someone. The market has a very natural blocking because of this. Regulations are put in place for the most part, to insure supply of a key utility and at a not too insane price.

Furthermore, most government attempts to prevent "price gouging," like price ceilings, result in shortages and worse service compared to service with no price ceilings.

That depends on the regulation. Most of Europe has regulation monitoring the prices of electricity, and our electricity grid and power production is better maintained and more modern in most countries that it is in the US. We have very few shortages if any, and with the exception of developing regions of Europe, service of a certain standard is required by the regulation and huge fines are imposed if said service is not met. Some countries even have a minimum time regulation on repairs, which means that if people dont have power after a failure within a certain time, then they can complain and if the power company is too slow, get compensation.

Companies will still work to maximize their profit regardless of regulation. With regulations mostly just shift how they go about doing it. Regulation in many cases does not stop the problem it attempts to attack, it just rearranges how firms work or creates another problem in the process.

I dont agree. Regulation is key to many industries. If it was not for regulation cars would go 1 mile a gallon, and pollute like a coal factory. If it was not for regulation companies with near monopolies could charge huge prices for needed services. It all depends on how harsh the regulation is. A goverment body watching an industry's prices for price gouging is a mild form of regulation, but a goverment putting price maximums on something is hardcore. The later rarely happens in the industrialised world anymore.