How Rich is $400,000 Where You Live?

President Obama's new dividing line on tax hikes means different things in different cities.

New York City Manhattan Times Square
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For months, the cutoff for the "wealthy" in the tax debate has been $250,000. Now it's $400,000.

With the end of the year approaching, fiscal cliff negotiations have reached a fever pitch. The White House has suggested higher taxes for taxpayers earning over $400,000, up from $250,000, the president's dividing line on the campaign trail.

In terms of the average American taxpaying family, $400,000 is unquestionably a high income. Tax filers earning $400,000 a year fall somewhere between the 98th and 99th percentile, according to 2011 tax data from the Tax Policy Center, a nonpartisan tax research group. In this sense, $400,000 isn't a huge shift — filers making $250,000 are still in the upper reaches, between the 96th and 97th percentiles as of 2011.

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In addition, tax proposals tend to focus on earners' adjusted gross income — total income minus deductions like contributions to retirement plans. That means that taxpayers with adjusted gross incomes that come in just above $400,000 can often earn far more than that.

Still, earnings are relative. A family earning $400,000 in Manhattan exists in a very different world than one earning $400,000 in McAllen, Texas, according to cost-of-living data from the Council for Community and Economic Research (C2ER), an organization that promotes economic data availability and research.

That organization's cost of living index for the third quarter of this year scored Manhattan at 229.6, with 100 being the national average cost of living across 304 urban areas studied. That means that the after-tax cost of a professional or managerial standard of living in Manhattan is more than twice the average cost of living.

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By this measure, $400,000 in Manhattan is roughly equivalent to $174,000 in cities that have nearly-average cost of living scores, like Champaign-Urbana, Ill. (with a cost of living index of 100.1), or Kansas City (100.2).

Of the 304 urban areas that C2ER studied in its latest cost of living index report, these are the ones where $400,000 buys the least.

Urban Area Cost of Living Index Cost-of-Living-Adjusted $400,000
New York (Manhattan), N.Y. 229.6 $174,254
New York (Brooklyn), N.Y. 180.2 221,936
Honolulu, Hawaii 169.7 235,692
San Francisco, Calif. 168.3 237,719
San Jose, Calif. 157.0 254,713
New York (Queens), N.Y. 152.4 262,516
Washington-Arlington-Alexandria, D.C.-Va. 150.9 265,157
Stamford, Conn. 148.4 269,503
Boston, Mass. 142.8 280,192
Juneau, Alaska 141.5 282,750

Then again, $400,000 is still a large income, especially in cheaper cities. Fully 215 of the 304 urban areas have cost-of-living index scores below 100, led by Harlingen, Texas, where the cost of living is 20 percent lower than the national average. Here are the urban areas with the lowest costs of living, as well as what $400,000 means there.

Urban Area Cost of Living Index Cost-of-Living-Adjusted $400,000
Harlingen, Texas 79.5 $502,874
Norman, Okla. 80.9 494,270
Ardmore, Okla. 84.2 475,032
Pueblo, Colo. 85.1 470,125
Memphis, Tenn. 85.6 467,315
McAllen, Texas 86.0 465,305
Muskogee, Okla. 86.2 463,916
San Marcos, Texas 86.3 463,715
Fayetteville, Ark. 86.3 463,401
Idaho Falls, Idaho 86.4 462,805

In any metropolitan area, however — from Harlingen to the Big Apple — $400,000 is still a high income. The top 20 percent of earners in the New York City metropolitan area earned over $132,000 in 2011, according to Census Bureau data. In the Brownsville-Harlingen, Texas, metro area, only the top five percent of earners earned more than $127,000.

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Whether the White House's shift to a $400,000 cutoff for tax hikes is a big or a small change is a question of perspective. It affects only a small part of the population, and it would likely make for a small impact compared to the entire federal budget, according to Joseph Rosenberg, a research associate at the Tax Policy Center.

"In a lot of sense the difference seems small in the context of the entire debate. Any one change is

almost by definition sort of small," he says.

The president's proposal would raise $1.2 trillion over 10 years, down from his initial plan to raise $1.6 trillion. Meanwhile, House Speaker John Boehner's framework, which aims to raise rates on income over $1 million, would raise $1 trillion. The $200 billion over 10 years that separate those two proposals is a paltry sum compared to federal spending. In fiscal year 2012, for example, the government spent around $3.5 trillion.

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However, a few hundred billion of dollars are a weighty matter in the context of the fiscal cliff debate.

"It's small in absolute terms but meaningful in relative terms as a part of this sort of negotiations that are going on," says Rosenberg. "A few hundred billion dollars over ten years is a sizable portion of what the debate is about."

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Danielle Kurtzleben is a business and economics reporter for U.S. News & World Report. Connect with her on Twitter @titonka or via E-mail at dkurtzleben@usnews.com.