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Measuring a Dollar.jpgCost 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.

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. The end result is that high cost of living areas are penalized by the federal individual income tax while low cost of living areas are given a bonus.

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. Use the app below to see whether you win or lose on your federal taxes based on your cost of living.

Read more on how cost of living impacts your federal income tax bill.


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