The reality is that you spend after-tax dollars, therefore, you have to earn enough pre-tax income to cover that after-tax spending. Obviously, if you need to spend more in a new city on an after-tax basis, you have to earn even more than that to cover the income taxes at the federal and state levels (in most states). This is why it’s so important to start the computation with spending, because how you spend your after-tax income is what defines your standard of living.
Do you choose to rent a smaller home in a more expensive neighborhood, or are you someone who chose a less expensive neighborhood so that you could get that extra bedroom? Maybe you’re the type who wants to pay a little less in rent so that you can spend more on organic groceries at Whole Foods, or wanted to have more cash to spend on clothes. No matter what your unique spending decisions are, a cost of living calculator should account for them!
Finally, only after arriving at a comparison between the after-tax income needed in each location should a calculation of income taxes be performed. The City Vs City algorithm can perform such a complex calculation that can reverse engineer income taxes based on after tax income and account for state and federal tax brackets.
Moreover, these income taxes need to grouped with the other main forms of taxation (namely, property taxes and sales taxes). This is the only way to obtain a true comparison because a neighborhood in another state, or even just another county, could have a wildly different tax structure. One place might have no income tax but high property taxes, and another location could have the opposite structure. This is why they need to be presented together, as the total taxes you currently pay versus the total taxes you’ll likely pay in a different city.
So it’s finally possible to discover what your lifestyle costs in a different city! All you have to do is enter a few of your unique spending habits, and you can start exploring how much they’d cost in another U.S. city!