“You get paid more, but your cost of living is so high,” said David Albouy, an economics professor at the University of Michigan who has studied geographic tax inequality. “You are also paying a lot more in federal taxes.”
Geographic Imbalance
Politicians from higher-cost areas have tried in vain to advance proposals for indexing federal taxes and benefits to local costs. The late Senator Daniel Patrick Moynihan of New York pressed the case that northeastern states send more in federal taxes than they receive in federal spending, while those in the South and Midwest get more from the federal government than they send to Washington in taxes.
“It would be nice to have this amount adjusted geographically, but it’s going to be tough,” Albouy said, noting how bigger cities are proportionally under-represented in the Senate, where even the least populous states have two lawmakers.
“A lot of these things are political non-starters because of the Senate,” he said.
Some lawmakers and business leaders have suggested that rates be raised at a higher income threshold than proposed by the president. That would protect those in the most expensive housing markets, where Senator Chuck Schumer of New York has argued many making $250,000 a year are “not rich.”
Higher Bar
Schumer, a Democrat, has in the past backed raising the top tax rate only on couples earning more than $1 million. That concept also once had some support from House Minority Leader Nancy Pelosi, a Democrat representing a high-income San Francisco district.
Billionaire investor Warren Buffett said late last month in an opinion piece in the New York Times that he supports Obama’s proposal to end the Bush-era tax cuts for the wealthy, although he’d like to see the level set at $500,000 in earnings and above. That figure won support from a small group of Republicans in the House, including Representative Mike Simpson of Idaho, if it’s tied to an overhaul of spending on entitlements such as Medicare.
“In an ideal world, from my perspective, the income threshold ought to be not $250,000,” said Representative Gerry Connolly, a Democrat who represents a northern Virginia district that has the nation’s highest median household income. “It ought to be much higher. I’ve suggested $1 million.”