The Ghetto Tax

The New York Times has an article on the so-called “Ghetto Tax:

“Drivers from low-income neighborhoods of New York, Hartford and Baltimore, insuring identical cars and with the same driving records as those from middle-class neighborhoods, paid $400 more on average for a year’s insurance.

Those were just two examples among several cited in a report Tuesday showing that poor urban residents frequently pay hundreds if not thousands of dollars a year in extra costs for everyday necessities. The study said some of the disparities were due to real differences in the cost of doing business in poor areas, some to predatory financial practices and some to consumer ignorance.

…Citing other examples of the ghetto tax, the report found that nationally, 4.5 million low-income customers, defined as families making less than $30,000 a year, paid an average of two percentage points more for car loans than did middle-class buyers. And the common use of storefront check-cashing services by poor people, it said, comes at a steep price that varies with local regulations; in 12 cities studied, the fee for cashing a $500 check ranged from $5 to $50.

Part of the problem, the study found, is a discrepancy between the poor and the middle class in consumer skills and mobility: people who comparison-shop, especially on the Internet, tend to pay hundreds less for the identical car than those who walk onto a city lot and buy.”

You want to know why there’s a “ghetto tax?” It’s just the market at work.

Take the car insurance example. Why would people living in middle-class neighborhoods get cheaper car insurance than people in poor neighborhoods? Crime would probably explain a lot of it. The chances of getting a car stolen or broken into in a poor neighborhood are much higher.

Then there are the check cashing services. Why would someone have to use a check cashing service? Because there’s not enough money there for a bank to set up shop and because the bank may not want to put its employees at risk in a high crime area.

The same goes for grocery stores. A middle class area may have two big chains nearby competing for the business of the people in that neighborhood. A small neighborhood may only have a small, expensive, local grocery store run by a guy who jacks prices up even more because he knows that most of the people in the area don’t have cars and therefore, will have trouble going cross town to a competing store.

Some of these problems are endemic to poor neighborhoods and are going to be impossible to fix via regulation or tax breaks without exorbitant costs that far outweigh the benefits given. However, there is one thing that could and should be done that would make a big difference: that’s cracking down on crime.

No American should ever have to live in a neighborhood where they see drug dealers on the corner or worry about being killed by gang bangers every time they walk out of their apartment. For that reason, we should be willing to spend more tax dollars on the police and prisons.

Moreover, beyond that, cutting down on crime will cut down on the costs for Americans living in bad neighborhoods. Insurance costs will drop, less money will have to be paid out of pocket to fix damage caused by crooks, more competing businesses will be willing to move into the area — it’ll make life better for people in poor neighborhoods in a myriad of ways….unless they’re criminals.

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