Your Dollar Doesn’t Go Far in Maryland

The Tax Foundation released a pretty cool map today. It shows you how far you dollar goes in each of the 50 States and the District of Columbia.

Unsurprisingly, Maryland doesn’t fare so well when it comes to this type of analysis. In Maryland, the relative value of $100 is only $89.85, the sixth worse ratio in the country. Our neighbors, incidentally, are blowing us away in this regard. In Virginia it’s $96.90, $97.75 in Delaware, $101.32 in Pennsylvania and $112.87 in West Virginia.

With that type of value on the dollar, it isn’t hard to rationalize why so many people are leaving Maryland to move elsewhere.

The authors of the piece have a very simple and easy to understand explanation for all of these relative values:

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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. 

As we showed in an example in our recent paper on income data, adjusting for prices reveals average real incomes in Kansas to be higher than in New York, despite New York having much higher incomes as measured in dollars. 

The tax policy consequences of this data are significant. For example, because taxes must be calculated based on nominal income, the average New York resident pays significantly more in taxes than the average Kansas resident. But the Kansas resident actually has higher purchasing power, meaning that they get to pay lower taxes despite getting to have a richer amount of consumption.

Based on this analysis and on Maryland’s economic climate, it’s easy to see why purchasing power is drastically reduced:

• High of earnings from those working in federally-related employment
• High income, sales gas taxes, 
• High costs to sell goods high business  taxes and burdensome regulations 

Those factors create a toxic mix that severely diminishes the ability of middle and working class Marylanders to live well here in the state. It’s even a fact that hasn’t been lost on Democratic # 2 Ken Ulman:

The No. 1 goal of the #BrownUlman admin will be to position MD as the most competitive biz climate state in the nation #MACoCon #BetterMD
— Ken Ulman (@kenulman) August 16, 2014

The problem for Ulman is the fact that his ticket is responsible for the toxic mess that has severely harmed the business climate through onerous taxes, fees and regulations. The impact of those poor choices made in the O’Malley-Brown Administration have trickled down to middle and working class families whose bottom lines are being impact by the reduced purchasing power these taxes and fees have brought. And their purchasing power will be reduced further by the inflationary effects of the minimum wage increase being phased in over the next few years.

Elections have consequences. The consequences of eight years of O’Malley-Brown has been higher taxes, a worsening business climate, and reduced purchasing power for Maryland’s residents. What better time than now to truly Change Maryland.