We spend a lot of time here talking about the local regulations that harm cities, from parking minimums, to height limits to restrictions on mixed-use development. I’ve been thinking recently about another policy that impacts cities at the federal level: the tax code. I bring up this topic not to stoke the political debate on redistribution, but to think about the outcome that results if tax burdens push and pull people out of cities.
I’ve often heard libertarian and conservative types say that they prefer suburban or rural living because city residents are more dependent on government services, but is it really true that city dwellers depend on government programs more so than others? City residents clearly pay higher local taxes and receive more local government services, but I would argue that this isn’t as important as federal taxation and spending because local taxes benefit the taxpayers more directly than the wider net of federal redistribution.
In Triumph of the Cities, Ed Glaeser points to the mortgage interest tax deduction as an important factor that pulls people to the suburbs by way of home ownership, and I would certainly agree that all federal policies with the goal of promoting home ownership or facilitating easy credit harm cities. Another much-talked-about tax expenditure for ethanol fuel blenders has benefits that fall on drivers, and this is on top of all of the other tax benefits that domestic oil companies receive.
Several government programs subsidize those who choose to live in inconvenient places. The USPS delivers many packages for a flat rate fee, while I doubt that FedEx would find this pricing profitable. Similarly, the American Recovery and Reinvestment Act provided funds for expanding broadband to areas of the country that could not otherwise support the service.
Does anyone know of existing research on this topic? The Tax Foundation provides at least two data sets that are somewhat relevant, but neither answer the question. They show here which states receive more money than they spend and here the per capita federal tax revenues by municipality.