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Sunday, August 24, 2014

The Real Value of What $100 Buys in Each State

August 18, 2014

Update: For an additional map that breaks the data down by metropolitan statistical areas, click here.

This week's tax map shows the real value of $100 in each state. Because average prices for similar goods are much higher in California or New York than in Mississippi or South Dakota, the same amount of dollars will buy you comparatively less in the high-price states, or comparatively more in low-price states. Using data from the Bureau of Economic Analysis that we've written about previously, we adjust the value of $100 to reflect how prices are different in each state.

For example, Tennessee is a low-price state, where $100 will buy what would cost $110.25 in another state that is closer to the national average. You can think of this as meaning that Tennesseans are about ten percent richer than their nominal incomes suggest.

The states where $100 is worth the least are the District of Columbia ($84.60), Hawaii ($85.32), New York ($86.66), New Jersey ($87.64), and California ($88.57). That same money goes the furthest in Mississippi ($115.74), Arkansas ($114.16), Missouri ($113.51), Alabama (113.51), and South Dakota ($113.38).

Regional price differences are strikingly large, and have serious policy implications. The same amount of dollars are worth almost 40 percent more in Mississippi than in DC, and the differences become even larger if metro area prices are considered instead of statewide averages. A person who makes $40,000 a year after tax in Kentucky would need to have after-tax earnings of $53,000 in Washington, DC just in order to have an equal standard of living, let alone feel richer.

As it happens, states with high incomes tend to have high price levels. This is hardly surprising, as both high incomes and high prices can correlate with high levels of economic activity. However, this relationship isn't strictly linear: for example, some states, like North Dakota, have high incomes without high prices. Adjusting for prices can substantially change our perceptions of which states are truly poor or rich.