Everyone knows that location matters in determining the relative cost of equal goods. It’s amazing, though, just how great a disparity exists between the costliest and the cheapest locations in the U.S. when it comes to stretching (or squeezing) the value of a dollar for all it’s worth.
The Tax Foundation is out with a new infographic that compares the relative buying power of $100 in each of the 50 U.S. states, along with some focused commentary suggesting even bigger value discrepancies between localities and metro areas.
The intent of the graphic is to show “the real value of $100 in each state,” according to The Tax Foundation. As a rule (there are exceptions), states that shelter lower wages are typically the same states that afford residents more buying power for their $100. Conversely, goods and services in states that offer higher wages usually also cost more than in their lower-income counterparts.
What that means, in most cases, is that lower income and lower costs in one state — or higher income and higher costs in another — tend to balance out. Residents of lower-income states who manage to command higher wages (through pensions, independent wealth, etc.), though, can enjoy both high income and low costs — a sweet financial proposition for those fortunate enough to earn high and pay low.
The most expensive place to spend $100 isn’t even a state; it’s Washington, D.C. There, $100 will only net you the same amount of product as $84.60 would at the national average. Hawaii, New York, New Jersey, and California round out the list of most expensive states using The Tax Foundation’s metric.
By Contrast, Mississippi — among the nation’s poorest states in terms of wage levels and public spending — will stretch your $100 farther than any other state. In Mississippi, what $100 will buy, on average, throughout the U.S. can actually buy much more: $115.74 worth of stuff. Unsurprisingly, the best dollar-stretching states happen to be in the Heartland and the Deep South: Mississippi, Arkansas, Missouri, Alabama and South Dakota round out the top five.
The Dakotas — particularly North Dakota — present an interesting exception to The Tax Foundation’s low-wage; low-cost rule. “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,” their report states.
“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.”
Viewed in terms of extremes, there’s a vast difference between the relative value of $100 in the nation’s costliest and least-costly states. “Regional price differences are strikingly large, and have serious policy implications,” the report asserts. “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.”
For an idea of how much greater the metro-level disparities are, see The Tax Foundation’s infographic, which it published in response to “a lot of requests – particularly from upstate New Yorkers.”
That map generally follows the same high-wage, high-cost correlation observed at the state level, although rural areas provide perhaps the most interesting revelation of all:
It’s important to see that price differences do persist across states, even in non-metropolitan areas. $100 still doesn’t go nearly as far in rural California ($101.94) as it does in rural Texas ($113.64). It doesn’t even go as far as it does in San Antonio. ($106.50.) This suggests that policy – not just geography and urbanization – may play a role in these price differences.