Why taxes should be adjusted for geographic cost of living

Our national discussion regarding income tax brackets has so far failed to address one of the major inequities of America's tax system. Dual-income households living in high-cost areas shoulder a tax burden disproportionate to those at their same standard of living in the rest of the country. And, not surprisingly, Manhattan workers carry the heaviest load.

According to the Bureau of Labor Statistics, the 2010 average weekly wage in Manhattan was $2,404, or just over $125,000 a year. The top-heavy financial sector skewed these numbers, as did the 22 percent living in poverty. However, Manhattan wages are still higher than the national average across all supersectors.

Of course, Manhattan salaries are high for a reason: They must meet the basic costs of living there. A 2009 Center for an Urban Future study compared the costs of living in Manhattan with other areas around the country and concluded, "Income levels that would enable a very comfortable lifestyle in other locales barely suffice to provide the basics in New York City."

Lower and middle class hit hard

These geographic and urban variations hit the Manhattan lower and middle class wage earners hard. The same study revealed that in 2009 a family attempting to live on around $26,000 a year in Atlanta would have to make $60,000 to meet their basic needs in Manhattan.

Consequently, a struggling Man­hat­tan family with a yearly salary of $60,000, but a standard of living uncomfortably close to the federal poverty line, is taxed at a higher rate than a family with that same standard of living in Atlanta (making $26,000 a year).

The higher costs in Manhattan quickly bump the dual-income families who can least afford it into higher tax brackets.

This disparity is exacerbated by state and local tax burdens. Manhattan families with higher incomes not only pay more federal income tax, they pay more income taxes overall.

That 22 percent of the Manhattan population living in poverty creates an increased need for social services, which, in turn, leads to higher local and state taxes. It's fair to say that the people of Manhattan have the highest tax burden in the country.

Same income, more taxes

I calculated expenses for a Man­hattan family of four with a combined salary of $250,000 and discovered that after taxes, rent, public transportation, groceries, clothing, individual health insurance, and saving for retirement and college, there would be about $700 extra per month remaining.

Of that $250,000, nearly $100,000 went straight to federal, state, and local governments.

A similar analysis for a family of four in Indianapolis shows that, even owning a median-priced, three-bedroom home and a car, that family would have an eye-popping $7,700 extra per month left over, more than 10 times that of the family in Manhattan.

This gulf was due primarily to the difference in housing and food costs. However, the Indian­apolis family, who could afford to pay more taxes, would actually pay about $22,000 less than the Manhattan family with the exact same income.

Government policymakers are rightly beginning to talk about geographic and urban disparities in their approaches to poverty. It is time that these same considerations enter into the national conversation regarding taxes.

Households in high-cost areas should not bear a heavier tax burden than similarly situated households in less-expensive areas. Tax rates must be adjusted for geographic cost of living.

Shannon Biggs grew up in Indiana and lived in New York City before settling in California. She plans to retire to a low-cost area someday.