Cost of Living refers to the differences in prices on a geographic basis. For example, it is common knowledge that the price of goods and services are generally higher in urban areas than in rural areas, especially housing. Therefore, when contemplating taking that shiny new job at a higher pay you should check to see after adjusting for cost of living if you are really going to better off.
For 2013, the metro area with the lowest cost of living was Brownsville-Harlingen, Texas with a cost of living index value of 81.6 (100 equals the national average). So if you earned $100,000 prior to moving there, you would only need to earn $81,600 to have the same lifestyle as before--to buy the same type of house, to buy the same amount of groceries, and to buy same amount of gasoline to fuel your car.
However, in stark contrast, there is New York City (Manhattan) which has the highest cost of living index value in 2013 at 220.4. As a result, a $100,000 income would have to grow to $220,400 in order to maintain an equivalent lifestyle. Of course, a major reason for this is housing where an apartment costs $3,783 per month or the cost of a house is $1.359 million.
The cost of living calculator below is published by The Council for Community and Economic Research and is the most authoritative index in existence having been published continuously since 1968. For more information on interpreting the data or on methodology, please see the cost of living index homepage. If you don't see your city represented in the index, consider becoming a data collector.
Of course, cost of living differentials play havoc with public policy. Often-times policy parameters are based on a fixed dollar figure, yet that fixed amount may be worth more or less depending on where you live. As a result, policy can inadvertently create distortions in the marketplace by not adequately addressing the cost of living issue.
A major example of this is federal tax policy in regards to the individual income tax. The income tax has a number of fixed dollar amounts such as the standard deduction and tax brackets. For instance, the 2013 standard deduction for a married couple is $12,200 and is the same whether you live in Brownsville, Texas or Manhattan. Follow the link below to whether you win or lose on your federal taxes.
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