The wealthy have been the subject of much discussion lately, from the protesters on Wall Street to lawmakers in Washington. President Obama has even provided a definition of who’s wealthy in arguing that taxes should be raised for those households with incomes of at least $250,000 a year. But is that really the marker of wealth? After all, earning $250,000 a year in New York does not buy as much as it does in, say, Iowa or Alabama.
This always strikes me as deeply confused. If you want to pay your daughter’s tuition at CalTech it doesn’t matter if you live in Manhattan or Mobile. If you want to book a 10 night stay in a hotel in Paris, it doesn’t matter if you live in Manhattan or Mobile. If you want to order an iPhone 4S, it doesn’t matter if you live in Manhattan or Mobile. It’s true that Per Se probably costs a lot more than any restaurant in Mobile, but that’s because the best chefs in America want to open the best restaurants in New York. The most important thing that you can buy more of in Mobile than in Manhattan is square feet of real estate. But that’s not because the same real estate is somehow cheaper in Mobile than it is in Manhattan, it’s because Manhattan real estate is exclusively available in Manhattan. But this is a bit like saying that someone who owns a Bentley isn’t really as rich as someone driving a Camry. Manhattan real estate is expensive because the supply is constrained and the demand is high. If you don’t want to pay Manhattan rents, you can move to Mobile. If you don’t want to switch jobs, you can try Mott Haven.
Now as it happens, I think the fact that real estate in coastal urban cores is expensive is a huge social problem. The rent, to coin a phrase, is too damn high and we need to change regulation to reduce the scarcity. But giving a tax break to people with expensive houses doesn’t solve anything.