Your Dream City Just Might Suck You Dry
WHY YOU SHOULD CARE
Because your hometown could cost you, big-time, over your lifetime.
Casey Hopkins lived in Boulder, Colo., for five years before Google swooped in, bought the startup she worked at and left her to find a new gig. But instead of looking nearby, the 27-year-old used the opportunity to apply for openings in big cities sprinkled across the country: San Fran, the Emerald City, LA. Her ultimate match? NYC, where she’s moving this spring to start work at a design firm. “This is my dream job,” says Hopkins. “Every single day, I get more excited about moving to the city.”
Countdown to April 15: OZY’s tax season special
Ah, yes, the City. Hopkins is but the latest millennial — those between the ages of 18 and 34 — to join the great urban migration. More than any other generation, millennials are moving to city centers, drawn by perk-filled jobs, higher paychecks and a dazzling nightlife. Population booms have ensued in places like Austin, Denver, Seattle and Nashville, as well as Calgary, Toronto and London. But, of course, there’s a catch. Living in a city comes with an added cost that many forget to account for: taxes.
We’re not just talking about income taxes, but sales and estate taxes as well, which can cost thousands of dollars a year — and hundreds of thousands of dollars over a lifetime. “It’s a challenge to grasp the impact of these smaller, somewhat hidden expenses,” says Eric Roberge, founder of Beyond Your Hammock, a financial advisory firm. “Over the short term, they may not seem like much, but over 10-plus years, they definitely add up.”
No kidding. Hopkins, for example, is moving to one of the country’s most expensive metropolises and adding anywhere from 2.90 percent to 3.86 percent in city income taxes on top of the federal and state income taxes that she’ll have to pay each year. If she makes, say, $100,000 (Hopkins opted not to divulge her income), then that’s $3,530 paid to the city annually, according to calculations from Wolters Kluwer, a tax information service. (To keep the math simple, we’re assuming Hopkins has no NYC tax credits.) If that held steady for 40 years, her total would top $141,000 in lifetime taxes, which soars to more than $260,000 when including a 3 percent average inflation rate during that time.
Just ask Brian Wright. The 37-year-old works for T-Mobile and spent 13 years in Springfield, Mo., before moving to Nashville, Tenn., in March after receiving a promotion with a 15 percent pay bump. Once he arrived in Music City, which has seen its population jump 5 percent over the past four years, Wright quickly got acclimated to the area, finding restaurants, running groups and even adjusting to his small apartment despite previously spreading out in a four-bedroom house. The one thing that caught him off guard? “The sales tax is so much higher,” he says.
Indeed, Davidson County, where Nashville resides, imposes a 2.25 percent tax on top of a 7 percent state sales tax and an additional 2.75 percent state tax for items costing more than $1,600. (Wright used to pay 7.6 percent in sales taxes.) For big-ticket items, warns Wolters Kluwer senior analyst Carol Kokinis-Graves, the cost is “going to be significantly different.” Wright is thinking of buying a new car; in Nashville, he would spend $525 more above the average price — $31,831 — due to taxes. Put another way: If that $525 were invested and earned a healthy 7 percent annual return, in a decade it would double to over $1,000.
Which doesn’t bother places like Davidson County. The recent population boost has led to a 12 percent jump in sales tax revenue in two years. “Clearly part of Nashville’s current economic success can be directly attributed to its growing millennial population,” says Davidson County and Nashville finance director Richard Riebeling.
To be sure, boomers remain the main attraction for many cities. Over the next decade, estimates show, the 65-plus crowd will control 70 percent of U.S. income. And like their millennial offspring, boomers desire city life again. But they look toward cheaper cities — like Wilmington, N.C., and Phoenix, according to RealtyTrac — while millennials prefer pricier places such as Washington, D.C., and San Francisco.