We moved here from New Hampshire, the state with the second lowest per-capita tax burden in the US. The lowest is Alaska, with it’s Permanent Fund Dividend—they pay you to live in Alaska and use money from the mineral rights from state-owned lands. In New Hampshire they do it the old-fashioned way: by having very small, frugal state government.

This is clearly not the Pennsylvania way, nor is it the Pittsburgh way. So today is the end of the month and my first paycheck as a Pennsylvania resident was deposited in my account. Since I still have the same job for the same company this provides an concrete, simple way to determine: just how much more does it cost to live in Pittsburgh than it did to live in New Hampshire?

Taxes, Taxes and More Taxes

I’m going to write this up without telling everyone exactly how much money I make. Friends know that I’m not that private about stuff like that, but revealing detailed salary history does put one at a disadvantage in future salary negotiations. And the Internet is forever. If you’re smart enough, you can probably figure it out from what I write. But don’t do that. It’s rude.

So the difference between my take-home pay in New Hampshire and my take-home pay in PA? 5.2%. At the end of every month in Pittsburgh I have 5.2% less money in my pocket (by which I mean my bank account—my metaphorical pocket) than I did in New Hampshire.

The difference is state income tax (New Hampshire has none) and city income tax (no city in New Hampshire has one). But the differences don’t stop there. Pennsylvania and Pittsburgh also have sales taxes (7% on most stuff we buy). New Hampshire doesn’t have that, either. And, since we bought a house here, don’t forget about that totally crazy 4% transfer tax. Four percent. Tax. On real estate transactions. That is a serious disincentive to buying property here. Even with affordable real estate that is a serious chunk of change when buying a house.

But wait, there’s more. Property taxes here are higher than they were in New Hampshire, too. About .9% higher per year. And the liquor is more expensive (and harder to get). So what does this all add up to? Let’s split the transfer tax between me and Beth and amortize it over 5 years (a reasonable time to assume we’ll be in this house although I hope it’s longer). Let’s take the property tax rate difference (ignoring the differences in the values of the houses) and tack half of that on per month. Let’s also make some half-assed calculation about how much sales tax the IRS would let me deduct? they estimate another $98 a month of sales tax. While I find it hard to imagine that I would be spending that much money ($1400/month) on taxable items, that’s what they say and I don’t have a good basis for disagreeing with the IRS’s statisticians.

So grand total? 8.7% of my take home gone to various kinds of taxes. Over and above what I was paying before. And that’s assuming Beth pays her share.  If she mooches off of me (or vice-versa) we’re looking at well over 10% reduction in take home pay over the New Hampshire situation.

Choices and Consequences

I’m sorry if it sounds like I’m complaining. I’m really not. One of the great things I learned while living on the New Hampshire/Vermont border was to be mature and honest about tax policy. There’s no free ride. If you want a government that provides infrastructure and services, someone has to pay. In Vermont they have decided they want that and they pay for it. Boy, do they pay for it. Vermont has one of the highest per-capita tax rates in the country. But they offer health insurance to every child to the age of 18 for free through the “Doctor Dinosaur” program. And they send a nurse to your house after you have a baby. And they have health inspectors and pay for highway repairs and fund their schools. All that crazy stuff that governments tend to do.

New Hampshire, just as rationally, has chosen to do almost none of that stuff and instead just to have low taxes. It sucks to be poor in New Hampshire. There are no housing benefits, Medicaid is almost unfunded, the Department of Public Health has to beg for money for vaccines every year, the schools are criminally underfunded. Restaurants are only inspected when towns choose to pay for that, and not all of them do. And the list goes on. But wow are taxes low. And people (even lots of the poor people) seem to really like it.

Neither of these seems a fundamentally bad choice to me. Just significant differences in direction with important consequences. I haven’t lived in Pittsburgh long enough to know whether people are honest about tax policy and consequences here. My initial impressions, based on the disagreement about the Allegheny County drink tax is that there’s a lot of dishonesty and a lot of manipulation. There are three or four reasonable positions on that issue that I can see and none of them are being publicly discussed, at least where I can see them.

So back to taxes, services and quality of life in Pittsburgh. What do I get for my 8.7% and is it worth it? Well, I get people to come to my house and pick up my trash rather than driving it to the dump myself. That’s kind of cool, but usually costs $20-50/month or so. Schools? My kids are too young so far and public schools refuse to educate 3 or 4 year olds no matter what parents want. So it’s private pre-school for Agatha and playing at the JCC for Beatrix. And Pittsburgh public schools seem uneven, although there are some really bright spots and they appear to be getting better. I’ll have to learn more about that in years to come. Police services? Hope not to need them but those were funded reasonably in New Hampshire. Infrastructure? There’s a lot of it in the city—roads, bridges, tunnels—and it seems to be reasonably well maintained. In any case it’s under construction all the time. Public health, housing assistance, other public programs? I honestly don’t know yet.

The Bottom Line

At this point you might think I really am cranky. I don’t have a clear, material, personal benefit for my 8.7%. But so far Pittsburgh really impresses me. There are all kinds of harder-to-quantify positive aspects of living here that depend upon it being a medium-sized city. And medium-sized cities cost more money than small towns, per capita. I like walking everywhere. I like having bus service. I like having a town full of smart, engaged, hard-working people surrounding me. It makes me think I might become a smart, engaged, hard-working person, too.

I haven’t even addressed business tax policy, which does seem crazy in Pennsylvania. There’s a tax on capital invested in businesses and a corporate income tax as well.  It’s not clear that that is a smart way to attract people who want to start companies, although taxes are far from the most important factor in that equation.  Witness California’s silly high taxes and how many companies start there.

But for an individual it’s not cheap to live here, tax-wise. And the verdict is still out as to whether it’s worth it. But I don’t feel cheated yet.

“Of all places, I never would’ve expected to build my startup in Pittsburgh. I moved to the ‘burgh from Chicago when Sonya Labs got a seed-stage investment from AlphaLab. It is not so unfathomable that I’m here, though, it actually makes quite a bit of sense. Even Paul Graham, a Pittsburgh native, who is famous for advising that startups go to Boston or Sillicon Valley says so!”

I have read this Paul Graham essay before (and found it frustrating, given where I was living and would be living, but not obviously wrong).  But I had totally missed the fact that Graham is from Pittsburgh.

Graham’s central point is that Pittsburgh has plenty of tech talent and not enough money to create a startup environment.  Specifically, he argues that there are “no rich people”.  I’ve only been here a few days, but that seems obviously wrong.  There may be not enough rich people or not enough rich people investing in high tech companies, but that’s very different from arguing that there are no rich people.

Sonya Labs argues that the presence of good technical talent, combined with lost cost of living make Pittsburgh an almost-ideal startup city.  They spend some time talking about how to make Pittsburgh a more obvious choice to people in other cities thinking about relocating in order to start a business.

When I lived in Albuquerque, I worked with the New Mexico Information and Software Association (NMITSA).  One of the hardest problems we faced was with the idea of how to get more of a startup, innovation economy going in Albuquerque and Santa Fe.  That area had two national laboratories, a decent research university, a metro area of about 500k people, and a bunch of tech-oriented rich people with second homes running around.  But it was much harder to get that kind of economic activity started and running than I thought it would be.

I will be very interested to see how Pittsburgh shapes up in this regard over the next several years.  On the face of it, Pittsburgh has several advantages over New Mexico.  It is a much bigger city than, Albuquerque.  It has more (and better–sorry UNM!) universities.  And there is already a certain amount of start-up infrastructure here.

So what is Pittsburgh missing to make it really take off? Tax policy?  More money?  A few dedicated (crazy?) people?   Anyone?  Bueller?  Anyone?

My early impression of Pittsburgh is that there’s an awful lot of biotech and medical startup activity going on, but not as much web stuff.  That’s fine, of course, but a mix is nice, too.  In some ways, this crop of companies looks like a lot of “me, too” with some “social network”, “facebook” and “social media” buzz lathered thickly over the top.  But when someone wants to spend money making web comics easier to make (as Chogger apparently does), you have to smile.

I’ve started perusing the resources available at InnovationWorks and starting to get a handle on startup culture and environment in Pittsburgh.  I was previously involved in some startup and venture-related activities in Albuquerque and I’ve been through a couple of rounds of funding at Renesys, so I have some context.  Pittsburgh looks like it’s in decent shape.

In particular, Alphalab looks like a reasonable deal.  Six months of use of space, some mentoring and $25k for 3% of common stock.  That’s an $833k valuation on what, in most cases, is just an idea.  Moreover, it is probably just the kick in the pants that many of these entrepreneurs need to get started.  I look forward to watching these six companies over the course of the next year or so and learning more about the funding/support system for startups in Pittsburgh.