by Peter Panepento
Folks in Erie often complain about the high state and local tax rates.
But here I offer a glass-is-half-full assessment — Erieites, on average, pay less in federal taxes than those in higher wage communities.
A new study by David Y. Albouy, a professor of economics at the University of Michigan, finds that workers in high-wage cities pay 30 percent or more in federal wage taxes than similar workers in equivalent jobs in lower-wage cities.
Since Erie’s per capita income levels are resting somewhere around 85 percent of the national average, and with wages that are typically below the scale of other cities, it stands to reason that Erie workers are sending less of their income to Uncle Sam than their counterparts in cities like Pittsburgh and Philadelphia.
I’m not necessarily sure this is a good thing, since that means workers are also bringing home less money. But it does further lower the cost of living and working in Erie.
After more than six years working as a journalist in Erie, I'm now the web editor for the Chronicle of Philanthropy in Washington, D.C., and the publisher of GlobalErie.com. I still maintain close ties to Erie - a community that I care about deeply. I hope this Web site can help inspire a better future for Erie.
MGR
June 3rd, 2008 at 10:54 am
People in NY and Boston complain about this constantly as their unholy cost of living easily tramples the pay differential even before the high taxes kick in. Pittsburgh?? Per BLS MSA data, they are pretty even with Erie, just larger.
MGR
June 3rd, 2008 at 11:09 am
I would love to see a study on Erie’s underground economy. I am sure you have all had dealings with them - the landscapers, contractors, shop owners and others who seem to have an affinity for cash payments, don’t take much work that would trigger a 1099, etc. I have heard estimates that 12 percent of sales in the U.S. for goods and services never show up on tax returns, but somehow in all my travels, it seems to me that it may be higher in Erie. I don’t know if anybody else out there has ever made that observation.
Ron
June 3rd, 2008 at 4:09 pm
When you’re paying almost $2300 in total taxes (City, County, School) on a house assessed at $65,000, and you find out that someone in North Carolina pays almost HALF of that on a house around 90k, it’s pretty safe to say that you’re paying a great deal in taxes.
That professor can take his magic math somewhere else. OF COURSE YO’URE GOING TO PAY MORE IN FEDERAL TAXES IF YOU MAKE MORE! What does this really prove if property taxes aren’t taken into account? Even more so when your local school district decides it wants your tax relief too!
Tom
June 3rd, 2008 at 4:25 pm
I agree with Ron.
Did this Albouy character get paid to determine that the more you earn the more you pay in fed. taxes?
Given a choice, I think I’ll take the higher pay!
Sounds like bosses I’ve had in the past: “You know, I could give you a raise, but you would just pay more in taxes”.
I think this “study” tells us more about the state of higher education, than anything about tax policy.
MGR
June 3rd, 2008 at 6:17 pm
I am on with you guys, more is more. The problem in the big cities is the out of control costs created by urban density combined with a culture of lending to the max. Therefore we get people making $200K+ who are tapped out with debt, and every increase they get is getting gobbled up at over 50 percent income taxes. I get this professor, but this complication exists mostly on the coasts, and some spots such as Phoenix, Chicago, etc.
Peter Panepento
June 3rd, 2008 at 8:36 pm
The professor’s study covers only federal wage taxes. I’m acknowledging that property taxes are higher in Pa. than in many other places (though you should take a look at NY State to feel a bit better). I’m also saying that folks are paying more in other parts of the country on their income because they make more money and have to spend a lot more money to buy their homes, etc. It’s a trade off. The fact that you can buy a $65,000 house and have a mortgage well under $1,000 a month is a laughable concept in other parts of the country.
MGR
June 3rd, 2008 at 9:08 pm
It’s always a red flag when people in an area are paying 7-10x their annual salary for modest housing.
Julio C. Reyes
June 3rd, 2008 at 9:33 pm
Peter,
Just to have fun,
Remember Economics is the science that shows how things actually do work. David Y. Albouy as economist used mathematical models in his study to demonstrate how Federal Income Taxes are paid (collected) and the possible effect they might have in future tax revenues.
Let’s take Julio as a guinea pig and a parallel universe between Erie and California. Let’s say Julio in California pays $100.00 federal tax and Julio’s clone in Erie pays $70.00 federal tax. The total federal tax collected is $170.00 and then is time to spend. We split the money in two (170 / 2). Julio and his clone get $85.00 each.
Technically Julio in California is receiving $15.00 less and Julio’s clone in Erie is getting $15.00 more. So this economist argument is that we should have some kind of indexation for Federal Taxation to compensate for these discrepancies. I believe he is trying to demonstrate why a flat federal tax at the end might not be that fair or even good (collection purposes) after all. But he is also saying that Feds better spread the money wisely otherwise Julio will get only 85 clones in California instead of 100 (15% reduction) thus Uncle Sam will be losing 34Billion tax revenue. Following with his arguments parallel universe and Julio’s cloning then I am assuming it is much likely that Julio’s clones in Erie will be 115 instead of 100. Of course some of Julio’s clones by that time they will be living out of welfare because the Federal Tax surplus caused in theory by the unfair taxation and distribution. The other option instead of fooling around with tax indexation is of course to have everybody at the same level of wages regardless.
Just to make it clear. Julio and his clones, parallel universe. The difference in Federal Taxes paid is based exclusively on the Federal Wages for Federal Income tax purposes. In his mathematical models this professor already made adjustments to account for discrepancies presented by other people here like local taxes, culture of lending, loan, mortgages’ interest, and all other esoteric arguments and BS.
Julio C. Reyes
June 3rd, 2008 at 10:35 pm
Peter,
Oops,
I need to make a correction to my prior post. I mistakenly refer to 34Billion tax revenue and I should have said 34Billion GDP. Also, I need to make clear that the impact in the GDP loses affects my clones in Erie rather than my clones in California.
Sorry, my bad.
George Vietze
June 4th, 2008 at 7:04 am
Before moving from Califonia to the Erie area I obviously checked out the real estate values and the real estate tax situation. My situation at my age of 70 and being retired has a different perspective than younger residents. The cost of real estate in the Erie area should be considered a blessing and a gift, the sooner you take advantage of this gift the better off you will be. Compared to other areas that have the demographics of Erie the benefits are considerable. Real estate taxes as a percentage of value are higher in the City but the savings on the cost of real estate help counter balance the higher cost of real estate taxes. In the country, Pennsylvania has a new “clean and green” real estate tax category on parcels of land ten acres and more, for example the tax on approximately 16 acres of land that is located approximately 20 minutes from Peach St. is less than $175.00 per year, and on that parcel of land when the owner builds, the portion of land that the house would be built would be assessed approx. $25,000 and the tax would be minimal. When people like myself as I get older and prefer to live closer to levels of care and transportation, which is readily available in the City, projects like condos in the Mercantile Building become an option. Rents are lower in the City than most other Cities, transportation is available and libraries and shopping, activities galore.
Erie has tremendous potential, I have started to read Jane Jacobs book, The Death and Life of Great American Cites, a gift from globalerie that showed up when John Morris posted the information.
It explains in the first part of the books how typical City Planners destroy the potential of our great cities with improper planning and how most places do not let the down town areas be “down town areas” by using the activity of the people and the synergy of the shoppers and the orientation of the shops create the “safety” of the streets. It is an important book that needs to be read by the head politicians and the people who have the interest of the City of Erie at heart ,as Erie changes from the Old to the NEW. She refers to the North End of Boston, where I once lived, that was once considered a bad place to live which now is one of the most desireable places to live in Boston as they intergrated the old with the new but kept the old buildings and the character of the neighborhood, the shops and the people who live in the area attract people from all over to give the place the wonderful energy and “charm” not to mention the wonderful food and bakeries and shops and new condos and residences similar to the Mercantile Projeject and the Griswold Park area and the Perry Square area and eventually the Parade Street area and other areas. Everyone who has any of those areas at heart should read this book. I bought an extra copy, and once I finish the book and understand more of the concepts, I will make the book available to the Mayor of Erie, if the book passes the globalerie test.
The City of Erie has some challenges with the lack of capital to upgrade infrastructure and other city challenges but tools such as Improvement Districts that pass on infrastructure costs to projects and areas that benefit from those costs and take the burden away from areas that do not benefit. As the Bayfront Develops and more down town and midtown projects become viable the economics should improve. Now is the time to start planning and laying the ground work
the players in the Perry Square area, the Griswold Park area and the midtown area have a vested interest in the success of Erie as do other people and they will help carry the ball to the City officials who will shape the future of the City of Erie. People the Julio Reyes, the owners of Nickel Plate, Erie Antiques, Kraus Dept. Store, Matthews Trattatoria and others in the Parade Street area will join the synergism and become part of the total city and be linked with walkways and transportation to each other. I am not a City planner but have worked with City Planners and Long Range Planning Departments in Scottsdale, Arizona and with proper planning watched places grow and change the quality of areas as other adjacent communities without planning and leaving the decisions to developers who have only one thing in mind, the most Return of Investment of their project and let the City and other residents worry about their own interest became less desireable. It is all about PLANNING…..
Real estate taxes are higher as a percentage of value but the value is lower than comparable properties in other areas. The overall demographics in Erie are better than most places, a balance of economic base from manufacturing, tourism, insurance, medical, retail, etc., Many attractions from Family Sports Park, Waldemeer Park,
Splash Logoon, ball parks, sports facility, theatre, art and on and one.
Convention Center, 5000 hotel rooms, Bayfront potential, Presque Isle beaches, Casino/racetrack., For a City the size of Erie can anyone come up with another community the size of this area with more potential in comparison to the cost of living and real estate values
that has access to 50% of the population of the United States within 500 miles? Some of us thank God that the winters save this area from being as crowded and over populated like other areas, but as Erie grows more people and more projects will be developed. The question is whether that development add to the quality of life or detract from the quality of life in the area. The choice is up to the PLANNERS.
Dan
June 5th, 2008 at 8:36 pm
Ron, as compared to NC, you forgot to take into account the high personal property tax that has to be paid yr after yr.
Dan
June 5th, 2008 at 8:41 pm
Julio, In your assessment of the 2 taxpayers. One paying $100 and the other $70. The Fed will spend $125 of the $170 in Ca and and $60 in Pa, Also included will be $15 to the US debt.
Julio C. Reyes
June 5th, 2008 at 9:06 pm
Dan,
You are delusional. Everybody knows as the professor proof in his work that places like California get far less than the money they send to Washington. I only read and understood the professor’s work attached by Peter. I only tried to put it in plain English.
I also made it very clear that this guy is only talking about federal taxable wages and Federal income Tax. Did you read the material? Probably not.
See I have interest in both places. I live and work in California and I have investments in little town Erie. So, to me it really does not matter.
In fact the reason because I made the corrections about GDP- Erie, besides being wrong in my original post, is because as a side effect of the federal expenditures in the area the wages remain low. The reason because the wages remain low is because the government jobs compete with the private jobs. And the final proof of that theory is how many government employees are in the Erie County area. Who are the top ten employers in the Erie County area? Find the answer and you will change your mind. Or at the very least read the professor’s work and then we talk and discuss specific points in that material.
Dan
June 5th, 2008 at 11:00 pm
I’m sure someone out there will find a chart that has a ratio of federal tax dollars collected to that which is returned to each state. I beleive even with 3 x the population as Pa, Ca probably receives more than 3x the tax $ spent in Pa. Just take military expendetures. Look at the basses in Ca or what about fed highway dollars. I’ll be convinced when when I see the stats.
MGR
June 5th, 2008 at 11:24 pm
I really don’t care to break out the state tax books, but if memory serves Dan is right, NC hits up people with wealth taxes and nasty corporate taxes that are tucked away in the regs so to keep the northerners on the grass is greener express.
Julio C. Reyes
June 6th, 2008 at 12:06 am
Dan,
If you would have read the report attached by Peter, you would have found the name of the government agency where you could find the information you are looking for. Basically is the census bureau.
http://www.census.gov/prod/2007pubs/cffr-05.pdf
Just open this link for year 2005 you might want to find all the information for all the other years just following the links. If in this link you do not want to bother to read either because you might be tired or because you are feeling lazy. Do not worry just look at the charts like the one in page 21.
By looking at these reports and charts you will find out some surprising information that will help you to understand things a little better.
MGR,
You said before:
“I get this professor, but this complication exists mostly on the coasts, and some spots such as Phoenix, Chicago, etc.”
It is much likely you already review the charts I am providing in this link because in you prior post you had acknowledged you saw the professor reports and probably some of his sources.
Now you are saying:
“really don’t care to break out the state tax books,”
So cut the nonsense.
Why is so difficult to understand that the professor already accounted for all the esoteric arguments and BS in his mathematical models.
Now one more time the professor is only looking at the Federal Income Tax and Federal taxes collected. And technically based on the text it seems again that this professor wants to encourage the IRS and the legislature (feds) to use some kind of indexation. So, for all of you that have no clue: indexation is always good. Why indexation is good because it spreads the load. Warning: is only when the Politicians mess around with the exemptions and loop holes when the things start falling apart.
MGR
June 6th, 2008 at 8:49 am
Julio,
I am way off topic on my last post, Dan’s comment reminded me of a past experience with North Carolina where I remember thinking that their ‘friendly’ tax system was a bit of a trojan horse. It kind of took me off guard at the time because I always thought NC was ahead of the game on state/property tax and I was wrong.
MGR
June 6th, 2008 at 8:55 am
So in summary, I thought NC was a tax friendly state and when you dig into it, I think you will find that it is not tax friendly, that’s all. No relevance to federal tax issues, etc.
Dan
June 6th, 2008 at 10:07 am
Julio, Sorry bad me.
Kim Green
June 10th, 2008 at 9:51 am
This is in response to George’s post….I would love to read “The Death and Life of Great American Cities” when you are done with it. As Director of Economic and Community Development for the City of Erie for the last 2 1/2 years, I have worked diligently to move the Mayor’s agenda of a strong urban core that includes market rate housing options forward. Within the 70 block area of center city downtown there are 1300 residential units, only 13 of those are owner occupied. It became apparent to me very early on that one of the reason we don’t have typical downtown home ownership was because there are no options for potential buyers. In essence the Mayor and the Redevelopment Authority are creating a market that did not exist. The 14 owner occupied condos in the Mercantile Building will virtually double homeownership in downtown Erie! We see this working in so many other communities and believe that Erie is ready for this kind of choice in the housing market. George, if you can get the book to me I would love to read it! I am always looking for new ideas to grow our city and make it an even greater place to live work and play.
George Vietze
June 10th, 2008 at 12:48 pm
Kim Green:
I have already obtained a copy of the book, Death and Life of Great American Cites by Jane Jacobs just for you. It would be my pleasure to
deliver the book to your office. Thank you for your interest, Erie has so much potential but unless we properly plan for quality growth we may miss the opportunity to maximize that potential.
I am on my way………