Patchwork Nation: How Tax Cuts Play Out County by County

BY Dante Chinni  December 7, 2010 at 1:18 PM EST

As the debate over extending the Bush-era tax cuts plays out in Washington, an important element is being left out of the debate – geography.

This tax cut debate has a similar sound to others in Congress. Republicans back extending the cuts for everyone, including those making over $1 million because “a rising tide raises all boats” and “wealthy people create jobs.” Democrats argue the breaks should go just for “middle class families” and “the poor,” because those groups tend to spend the money and they need it.

And all of this, of course, is set against the backdrop of a ballooning deficit where the federal government simply has less to spend. But lost in all those talking points is where the money actually goes.

Patchwork Nation sees wide disparities in where the wealthy live by county, and in our 12 county types, and those disparities show how the tax cut extension for all may miss the mark when it comes to getting past the lingering effects of the longest economic downturn since the Great Depression.

Why? Because even in the age of the integrated economy there are sharp differences in the 12 county types Patchwork Nation studies – as we noted last week when writing about unemployment. And those differences are highlighted even more when one looks at where the wealthy are.

The more likely result from a full extension? Some wealthier places that already look like they may be turning a corner would arguably get a more assured road to recovery by extending the tax cuts for the wealthy, but the idea that those cuts would also do much to aid struggling communities is harder to see.

Following the Money

Currently Congress seems to be adjusting to an idea of a compromise between Democrats and Republicans that would extend all of the Bush administration’s tax cuts to all income levels in exchange for an extension of the time unemployment benefits are available.

So what impact would extending those upper-income cuts have? One would expect that a big beneficiary in Patchwork Nation would be the wealthy suburban communities we call the Monied Burbs. Those places have the highest median household incomes of any of our 12 types.

And that does seem to be the case.

Consider Westchester County, the well-known Monied Burb of New York City where more than 10 percent of the households earn more than $200,000 a year – so it’s safe to assume a fair number earn at least $250,000. Extending the break those earners receive would arguably stabilize them.

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But go a little north at look at the Service Worker Center of Ulster County: there only 1.4 percent of households earn at least $200,000. North of Ulster the Service Worker Center counties of Delaware and Otsego have even fewer wealthy $200K-plus households – both .96 percent.

How much will the tax cut extension for Westchester’s wealthy mean for those more rural Service Worker counties? Probably not too much – not immediately. Unless the small businesses in those more distant counties are owned by people in Westchester, and those particular small business owners hire more people because of the tax cuts extension.

For all the talk of how interconnected the U.S. economy has made the country, Patchwork Nation’s examination of indicators like unemployment, foreclosures and income shows how segmented it still is.

In some of our county types, the Monied Burbs and the big city Industrial Metropolis counties, well over two-percent of the households earn more than $200,000 a year. But in others – like rural Tractor County counties, the Service Worker Centers and the Minority Central counties with large African American populations – not even one percent of the households see that kind of money.

Of course, over time, some economists would argue the extension of tax cuts for the wealthy would affect those more remote Service Center locales.

In time, some of that increased wealth in Westchester will migrate outward – directly through visits to those places by wealthy people and indirectly through general economic growth. We chronicled that outflow in “Our Patchwork Nation,” but it does not happen overnight, it takes time – and that is in a set of local economies that have struggled mightily.

Some Winners

In other words, even if a rising economic tide does, in fact, lift all boats, it lifts the boats nearest the cash inflow first and most. And that’s true in more than New York and for more than Monied Burbs and Service Worker Centers.

In North Carolina, about 3 percent of the households in Wake, a Boom Town County, earn more than $200,000 a year. Two counties to the east in Edgecombe, a struggling Minority Central locale Patchwork Nation visited earlier this year, only .6 percent are in that rarified income strata.

You can see the same kind of breakdown in California’s Bay Area in the Monied Burb of Marin County, where about 12 percent of households earn more than $200,000. Meanwhile, two counties to the north in the Service Worker Center of Humboldt County only 1.14 percent of the households are earning that.

Of course, for those people in counties like New York’s Westchester and North Carolina’s Wake and California’s Marin, the tax cuts extensions would be a winner. The small business owners in those places might hire, or not lay off, because of the extensions. Even the less wealthy in those communities would benefit form the cash that would make its way to those locales as people arguably would eat out more, shop more and just generally spend more money.

And there would likely be impact for many people in places with wide income disparities, like the big city counties of the Industrial Metropolis where the wealthy and not-so-wealthy bump shoulders on the street.

But in large swaths of America the argument that the tax cut extension would help small businesses, and therefore fuel the economic turnaround, seems at the very least to be a long-term proposition.