Thursday, February 6, 2020

Texas Monthly's DERP SQUAD Apparently Unaware that Taxes Impact Cost of Living

"But the former governors who were before me laid burdens on the people, and took from them bread and wine, besides forty shekels of silver. Yes, even their servants bore rule over the people, but I did not do so, because of the fear of God."
Nehemiah 5:15

It's not a secret that this author grew up in New York City.  Or that cost of living issues played a significant role in why we moved to Texas.  Thus this Texas Monthly piece a few weeks back caught our interest:

This is, obviously, a self-evidently moronic statement to anyone who's spent more than fifteen minutes in either city.

Nevertheless, we were curious about what statistical sleight-of-hand they'd used to come up with such a preposterous conclusion.

Our friends at looked deeper:
The CBC report includes property taxes in the cost of housing for homeowners and expresses housing and transit costs as a percentage of before-tax rather than after-tax median income. Therefore, the CBC’s methodology will overstate the burden of housing costs in areas where property taxes are an unusually large portion of overall tax revenue. As it turns out, Texas is exactly such a place.

Property taxes in Texas are high. In Harris County, which includes most of the Houston metropolitan area, the effective tax rate is 2.31%—in the top five percent of all counties in the United States and about three times the average effective rate of 0.8% in New York City proper. (New York’s convoluted system of property assessment gives many wealthy homeowners even bigger breaks on property taxes: Mayor Bill de Blasio, for example, owns two $2 million townhouses on which he pays property taxes of 0.2%.)

Texans, however, enjoy much lower taxes than New Yorkers in other domains. The state has no income tax, for example, whereas state income taxes in New York range from 4% to 8.82%. According to the Tax Foundation, in 2010, property taxes accounted for 45.2% of total state and local tax receipts in Texas but just 32.4% in New York state (most of which has higher property tax rates than the city). New Yorkers also pay for most of the costs of their public transit through tax subsidies, which come out of residents’ taxes but isn’t counted as a transportation expense in the CBC report.

Also this:
Even after these questionable methodological choices, the CBC still finds that living in Houston costs less in absolute dollars. But as a percentage of income, New York, which has a higher average household income, is cheaper. This is true, but the lesson that Texas Monthly draws by implication—that workers moving from New York to Houston would see their incomes drop by more than enough to offset the lower cost of living—rests on a false inference that ignores the differences between the two regions’ economies.

The New York metropolitan area has a high average income because it is unusually filled with skilled professionals who could earn high incomes anywhere; meanwhile, the region’s high housing prices have driven lower-income workers to leave. The Houston region, on the other hand, has a proportionally larger working-class population. This difference is reflected partially in educational attainment figures: 38.7 percent of NYC residents aged 25 and above had a BA or higher, compared to just 31.8 in Houston. Therefore, if a worker earning an average salary in New York left for Houston, he would quite likely earn well above Houston’s average income.

The perils of the CBC’s income adjustments are exemplified by the fact that the San Jose area, where small bungalows sell for a million dollars or more, had the third lowest housing expenses relative to income. This is largely because San Jose is filled with extremely high-earning technology workers: the average household income in the region is above $124,000. But if you’re not a computer programmer, you would be foolish to think that you could save money on housing costs by moving to San Jose.
Double Derp.

[Note: The Econ 21 piece has links to their data that are worth exploring.  Unfortunately, we can't directly copy them due to formatting issues.  We strongly recommend reading the whole thing, and clicking through some of the links, here.]

In other words, Texas Monthly's claim was accurate...except for every single detail.

Bottom Line: Houston certainly has some things New York City lacks.  Cheating-ass baseball teams first and foremost.  A higher cost of living, however, is not one of those things.

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