A New Year’s payroll tax hike would hit 'working stiff' metro areas the hardest

Hiking payroll taxes on the country’s working stiffs in the middle of a fledgling recovery—let alone during the holidays!—might not be smart macroeconomic policy, but in Washington’s new “sur-reality” the prospect looms on the horizon. Should this occur, which places would be hit hardest by the expiration of payroll tax relief? 

Individuals derive their income from three sources: Earnings for paid labor, investment income, and government transfers. Metropolitan area economies in which larger shares of total personal income are derived from earnings—the working stiff metros—are the ones that stand to take a disproportionate blow from Congressional inaction to extend the payroll tax cut.     

The map below uses Bureau of Economic Analysis data from 2010 to break the country’s 100 largest metropolitan areas into five groups according to the share of earnings in total area income. Workers win more of the bread in the blue metro areas and less in the red ones. Since the payroll tax hike would be levied against a larger share of total income in the blue working stiff metros, they stand to take the hardest hit.

Brookings Metropolitan Policy Program

Working stiff metros are neither uniformly white- nor blue-collar and can be found in every region of the country. Many have performed well over the recession and the recovery, but some have notably struggled.

Workers are the greatest breadwinners in high-wage, hyper-educated Washington, D.C., where they pull in fully 75.4 percent of all metro area income. Rounding out the top five are Houston, Denver, Nashville, and Dallas. A large federal government presence empowers breadwinners in Colorado Springs, Ogden, and Virginia Beach. Austin and San Jose represent a skilled and tech-y contingent. Des Moines and Worcester have had strong recoveries; Charlotte and Memphis, weaker ones. A number of other state capitals with diverse industrial bases round out the top 20: Atlanta, Columbus, Honolulu, Indianapolis, Raleigh, and Salt Lake City. Incomes (followed by spending) in these metros would feel the biggest impact from a payroll tax hike—a dose of anti-stimulus that could undermine their otherwise strong recoveries.

Relatively insulated from any potential payroll tax hike, meanwhile, are retiree hotspots in the Sun Belt and high-poverty or aging metropolitan areas mainly in the Rust Belt and California’s Central Valley. These metros, in red on the map, depend least on workers’ earnings as a source of income (although working stiffs still earn the majority of income in every metro area except Cape Coral and North Port, FL). Instead, income in these places is relatively more dependent on either investments or transfers, or both. Many—but not all—of these metros have struggled through recession and recovery.

Certainly, economic performance over recession and recovery explains some of the variation in earnings’ share of total income across metropolitan areas. After all, automatic stabilizers in the form of government transfers kick in, by design, during recessions to support lost earnings. Underlying any cyclical noise, however, are real differences in the nature of economic activity in and across metropolitan area economies. Certain metros, structurally, subsist more on the earnings of working stiffs than others. These places have the most at stake in the current payroll tax cut debate.

About the Author

Most Popular

  1. an aerial view of Los Angeles shows the complex of freeways, new construction, familiar landmarks, and smog in 1962.
    Transportation

    The Problem With Amazon’s Cheap Gas Stunt

    The company promoted its TV show The Marvelous Mrs. Maisel with a day of throwback 1959-style prices in Los Angeles. What could go wrong?

  2. Warren Logan
    Transportation

    A City Planner Makes a Case for Rethinking Public Consultation

    Warren Logan, a Bay Area transportation planner, has new ideas about how to truly engage diverse communities in city planning. Hint: It starts with listening.

  3. a photo of the Eiffel Tower with the words "Made for Sharing" projected on it
    Life

    How France Tries to Keep English Out of Public Life

    France has a long history of using official institutions to protect the French language from outside influence. Still, English keeps working its way in.

  4. A photo of a police officer in El Paso, Texas.
    Equity

    What New Research Says About Race and Police Shootings

    Two new studies have revived the long-running debate over how police respond to white criminal suspects versus African Americans.

  5. A mother and child sit on a roof in a city
    Life

    If Location Is an Asset, High Rent Is ‘Saving’ for the Future

    Calling all rent rationalizers: A new paper shows how your pricey neighborhood is a financial asset like any other.

×