City Slickers Pay Too Much Tax

(MoneyWatch) 
Think you're getting gouged by federal income taxes? If you live in a big city like New York, Los Angeles or Chicago, you're probably right. Or, at least, that's the conclusion of University of Michigan economist David Albouy.

In a recent study, Albouy found that workers in big cities pay about 27% more in federal income taxes than those doing similar jobs in smaller cities. Why? Well, because they earn more.

"Duh. Naturally when you earn more, you pay more," you say. "What about a progressive income tax system do you not understand?"

Albouy is quick to counter that real pay--after adjusting for the cost of living--isn't really higher because people in big cities pay more for everything from groceries to housing.

Worse, he says, is that federal tax dollars don't get spent in big cities. A disproportionate share go to rural and suburban areas. People in high cost areas are actually subsidizing people in low cost areas, he concludes.

The one exception: Hawaii. Even though the cost of living is high in Hawaii, Hawaiians don't suffer a higher tax burden because they accept lower wages to live in paradise. In effect, New Yorkers are paying more tax so people can live in Maui.

As they'd say in the Islands: "Mahalo."