(Corrects last sentence in second paragraph to add words
deleted in editing)
By Linda Stern
WASHINGTON Nov 26 From where I sit, $250,000 a
year - the amount President Barack Obama and other Democrats say
is top-tier household income - is a substantial amount of money.
But I don't sit in Manhattan or Honolulu or San Francisco, where
folks say they can easily blow through that much paying rent and
childcare, and not living like kings.
Cost of living disparities are in focus now, and not just in
the national tax debate. It's a big deal for families from
expensive places when they apply for college financial aid.
People who make, say $60,000 a year in Fort Smith, Arkansas -
one of the least expensive places in the country, according to
Kiplinger.com - have significantly more disposable income than
people trying to make it on that m uch in Ma nhattan.
And the differences are startling. You can buy a
four-bedroom, two-bathroom house in Redford, Michigan (just
outside of declining Detroit) for $60,000, or pay $1.7 million
for a similar home in Los Altos, California, in the heart of
Silicon Valley, according to numbers released today from
Coldwell Banker Real Estate.
You need to earn $250,000 in Los Altos, California to live
the life that $60,000 provides in Fort Smith, according to the
addicting cost-of-living-comparison calculator at Sperling's
Best Places website (www.bestplaces.net/col/).
New Yorkers and Silicon Valley dwellers can abandon hope
that federal tax rates will ever be adjusted to accommodate
their higher incomes. "It would be way too complicated to do
something like that," says Eric Toder of the Tax Policy Center.
Furthermore, policymakers are reluctant to underwrite lifestyle
choice. "If somebody chooses to live in an area like New York or
California, they are getting benefits; being near the water,
living in the city," says Toder.
Nevertheless, the tax code does offer a little bit of help
to folks who live in high cost areas. They get to deduct state
and local taxes, and mortgage interest. Even those provisions
get criticized for making the tax code regressive - putting a
bigger burden on low earners than high earners.
There has also been some talk of using a zip-code based
adjustment to the mortgage interest deduction if that deduction
gets capped in some grand fiscal cliff-avoiding bargain.
That's about it. Of course, you can really cash in on cost
of living discrepancies if you line up a telecommuting
programming gig at Silicon Valley rates and then make your home
in the outskirts of Detroit or on the Arkansas-Oklahoma border.
There a few other ways to either make the disparities work for
you, or at least minimize their impact if you're on the other
side of them. Here are some options.
* Dig into financial aid exceptions. Federal formulas for
most financial aid don't adjust their so-called expected family
contribution for cost of living, though they do allow a small
adjustment for state taxes. But some 300 schools use the College
Board's so-called institutional methodology for doling out aid.
That gives them the option of applying a cost of living
adjustment to the family's expected contribution.
For example, a family earning $80,000 in Manhattan would
probably be expected to come up with about 10 percent less than
the same family if it lived in upstate New York, says Myra
Smith, executive director for financial aid services at the
To figure out whether schools you are interested in offer
that adjustment, and how big it is, use the net cost of
attendance calculator that schools now put on their websites.
Put in different zip codes and see if the net costs and typical
aid packages differ, and by how much.
* Appeal aid packages. Smith also suggests that parents in
pricey neighborhoods appeal financial aid packages that won't
work for them. "Schools can often adjust aid on a case-by-case
basis," says Smith. Present the loan officer with a desk full of
high-dollar receipts for commuting costs or health insurance,
and you may be able to win a better deal.
* Buy a vacation home instead of a first home. This is not
an unusual strategy in Manhattan, where even small apartments
may be unaffordable to buy, but weekend homes near the
Pennsylvania mountains or Jersey shore may be priced
* Invest in less - or more - expensive areas. That's tricky,
because the same price-depressed market that may open up an
investment opportunity to you could also be signaling risks and
local troubles. So don't assume that just because a place is
affordable it is a bargain.
* Consider holding on to your home if you move from an
expensive to a cheaper area. People who leave San Francisco for
a short stint in New Mexico, for example, have a tough time
regaining their place in the San Francisco market. Rent out your
costlier place for a year or two instead of selling it, just to
make sure you don't want to go back.
* Negotiate hard if you're asked to move to a pricey place.
You don't really know how hard local baby sitting or trash
collection costs will hit you until you experience them. If
you're considering a move to a major city like Boston or Los
Angeles from a small midwestern community, for example, make
sure the job comes with the kind of differential that will such
a move worthwhile.
* Retire to a cheaper area. Many people spend their
child-rearing years in costly neighborhoods, because they value
the schools or proximity to good jobs. But once the kids grow up
and the parents retire, those priorities change. In addition to
cost of living disparities are income tax disparities; a person
who spent a lifetime building up a tax-deferred retirement
account in a high-tax state can make their money last
significantly longer if they move to a less expensive and lower
tax state when it's time to make withdrawals. And that's why one
generation after another ends up in Florida, even though they
say they never will.
(Linda Stern is a Reuters columnist. The opinions expressed are
her own. The Stern Advice column appears weekly, and at
additional times as warranted. Linda Stern can be reached at
email@example.com; She tweets at www.twitter.com/lindastern
.; Read more of her work at blogs.reuters.com/linda-stern;
Editing by Steve Orlofsky)