Told that someone earns $250,000 a year, you should ask, “Where do you live?”
According to CNN, you would need to earn $545,000 in Manhattan to spend what $250,000 will buy in Missoula, Montana. On this map, you can see how your cost of living compares to the national average.
Specifically, here is a shopping list: “ground beef, tuna, milk, eggs, margarine, potatoes, bananas, bread, orange juice, coffee, sugar and cereal.” In Manhattan: $40.29; In Twin Falls, Idaho: $23.41.
Buying a 3-4 bedroom house? $750,000 in Glendale, California; $375,000 in Twin Falls, Idaho.
You can see where this is going. At first, it sounds simple. President Obama suggested $250,000 as a dividing line for increasing taxes. One number, one level of income. But is it?
The Economic Lesson
Taxes can relate to income in 3 basic ways:
- Progressive taxation takes a higher percent from those who have higher incomes.
- Regressive taxation takes a higher percent from those with lower incomes.
- Proportional taxation takes the same percent from all.
Our current income tax approach is progressive while a sales tax is regressive.
An Economic Question: Using data from this map, explain how the cost of living varies.