It is fairly common knowledge that some of the wealthiest counties in the United States, ranked by median household income, are located in Virginia.
Although Virginia as a whole is ranked as the eighth-wealthiest state in the Union, Loudoun County consistently ranks at the top of the list of wealthiest counties in the U.S., with a median household income of $178,707. Fairfax County is currently the fifth-wealthiest county in the United States, with a median household income of $150,113.
Estimates of median household income levels at state and local levels are prepared as part of American Community Survey (ACS). The ACS is a nationwide survey by the U.S. Census Bureau that collects and produces information on social, economic, housing, and demographic characteristics about our nation’s population every year.
Household income in Virginia
The latest ACS data suggests that eight of the top 25 wealthiest counties (and county-equivalent jurisdictions, like Virginia’s Independent Cities) in the United States are located in the Commonwealth of Virginia. In fact, these eight jurisdictions are not just located anywhere in Virginia: they are all located in Northern Virginia.
Proximity to Washington, D.C. is one factor that may explain the economic success of Northern Virginia. In Fairfax County, approximately 80,000 residents work for the federal government, which is about 13% of the county’s resident workforce.
Its proximity to the federal government is only one contributor to the success of the Northern Virginia economy and its correspondingly high income levels. Fairfax County has a vibrant private sector, with strengths in technology, financial services, and cybersecurity. Fairfax and other counties in Northern Virginia have a highly education workforce, and there is a strong correlation between education and income-earning potential.
The cost of living in (Northern) Virginia
Rising prices have been in the news a lot in recent times. An economic pattern that has been getting much less attention–but is equally critical to the economy–is the variation in prices or the cost of living in a different places.
For instance, while home prices have been increasing across the country in recent years, home prices are much higher in some places than others. According to Redfin, median home sales prices have increased nearly 50% in Fairfax County, from $550,000 in January 2021 to $785,000 in May 2025. While housing prices in other parts of the commonwealth also experienced a considerable increase, the overall price levels tend to be much lower. For instance, median housing prices in Roanoke rose from $150,000 to $245,900 over the same period. While news outlets report that housing prices are going up, they often fail to mention that housing prices are three times higher in some places than others. This pattern hold true not only for housing prices, but for local variations in the cost of living overall.
Part of the reason why less attention is paid to differences in the cost of living than to inflation overall or to differences in household income is because few consistent indicators are available that measure differences in the cost of living across local jurisdictions. For instance, the measure used for cost-of-locality adjustments made to salaries of federal employees by the U.S. Office of Personnel Management (OPM) is rather imprecise, as it is based on metropolitan-wide cost indicators.
Perhaps the best measure of local cost variation currently available is the Economic Policy Institute’s Family Budget Calculator, which measures the income a family needs in order to attain a modest yet adequate standard of living. EPI’s household budget estimates reflect community-specific costs for standard family types in all counties in the United States (based on 2024 dollars).
A cost-of-living index prepared based on EPI data (shown below) suggests that the cost of living varies considerably across the Commonwealth of Virginia, with the cost of living in Virginia’s most expensive county (Arlington County) being 73% higher than an average jurisdiction in the Commonwealth. By contrast, Danville City has a cost of living that is nearly 25 percent below the state’s average.
The data above suggests that as a rule, the places that have higher incomes levels in Virginia also have higher costs. In particular, Northern Virginia is not only generally a high-income area, but also a region with a high cost of living. The same is true, to a somewhat lesser extent–for the rest of the urban crescent that includes Richmond and Hampton Roads. By contrast, counties and cities in the Southside region of the commonwealth and Appalachian Virginia generally have a below-average cost of living.
The distribution of real household income in Virginia
The large variations in the cost of living across the Commonwealth suggests that the real value of a household’s income greatly depends on where a household lives. As such, it is critical to consider not just the distribution of nominal household incomes across the state, but instead, to consider the distribution of real household income across the Virginia:
Although the overall pattern of real median household incomes follow more or less the same pattern as regular household incomes, the variations in real median household income are much less pronounced: after adjusting for the cost-of-living, the wealthy counties are relatively less wealthy, and the poor localities are generally less poor.
Whereas the difference between the wealthiest and least wealthy county in the state is nearly five-fold in nominal terms (range = 4.6), the difference between the wealthiest and least wealthy county in real terms is only close to half of that level (range = 2.45).
Fiscal systems often fail to consider income in real terms
Tax systems and government budgets generally consider income in nominal terms rather than in real terms. In practice, this results in a number of fiscal policy challenges. Overall, this bias tends to cause households in higher-cost localities to pay a relatively larger share of their real income in taxes, whereas these same localities are also often disadvantaged in the allocation of government resources.
Biased federal and state tax systems. On the revenue side of government finances, federal and state taxes apply equally to households with the same level of nominal income, regardless of the cost of living that they face. Imagine a household with an annual income of $76,160 per year — which is somewhat below the state’s median income ($96,490). In real terms, this amount would be sufficient to afford a family of four an adequate lifestyle (according to the EPI Family Budget Calculator) in Danville, Virginia. Yet, due to cost-of-living differences, it would cost a two-parent, two-child family in Arlington County $171,971 to afford the same package of basic necessities. When comparing two households–one in Arlington and one Danville–with the same real income levels, the family in Arlington would pay over three times more–and a much higher share of its income–in state and federal income taxes compared to the family in Danville ($30,119 or 17.51% in Arlington versus $8,266 or 10.85% in Danville).
In addition to facing higher prices for housing, food, and other necessities, taxpayers in higher-cost jurisdictions thus consistently pay a higher share of their real income in federal and state income taxes.
To the extent that higher-cost jurisdictions also tend to be higher-income localities (generally in metropolitan areas), this bias in the tax system effective adds a selective ‘hidden’ element of inequity and progressivity to income taxes and sales taxes. Personal income taxes and sales taxes are the top-two revenue sources of the commonwealth’s budget.
Biased government expenditures. Similarly, government expenditure programs are often biased against high-cost jurisdictions. The distribution of government expenditures–such as government benefits, subsidies, or grants-in-aid–tend to ignore or under-adjust for variations in costs.
For instance, while food prices vary drastically across the U.S., the nominal value of Supplemental Nutrition Assistance Program (SNAP) benefits is fixed across states (except for Hawaii and Alaska). In real terms, therefore, SNAP recipients in high-cost areas receive less of a benefit.
Similarly, it is not unusual for grant programs to de-emphasize or overlook differences in costs or cost-of-living. This is especially the case to the extent that high-cost jurisdictions are also higher-income jurisdictions (in nominal terms), because these local jurisdictions are not necessarily seen as ‘needy’.
For instance, in determining public education funding as part of Virginia’s Standards of Quality (SOQ), the so-called Cost of Competing Adjustment provides less additional funding than actual salary differences in some areas, as exemplified by Arlington County Public Schools receiving a 9.83 percent adjustment for teacher salaries (in 2023) while having actual labor costs 40 percent higher than the average Virginia school division.
Given the high cost of living in Arlington, it should be noted that even if the Commonwealth would provide Arlington with a full 40 percent Cost of Competing Adjustment, Arlington teachers would still receive a real salary that is considerably lower than teachers elsewhere in the Commonwealth. By not fully adjusting for the cost-of-living, the SOQ funding formula rewards teachers in low-cost areas of Virginia by paying them what they deserve, while teachers in high-cost areas of the commonwealth end up being paid what they are willing to accept.
Recognizing the political economy dimension
Without going into great detail, it is important to recognize that there is an important political economy dimension behind why the federal government and state governments often do not adjust adequately for variations in cost-of-living.
Politicians in red, low-cost areas of the state may be happy to turn a blind eye to the fact that constituents in their districts receive more benefits in real terms that constituents in other jurisdictions. Politicians in blue, high-cost areas may feel that the biased distribution of resources is a necessary political price to pay to achieve consensus on certain policies.
Key policy take-aways
Balancing efficiency and equity. Policy makers always need to balance two dual objectives: efficiency and equity. Although pursuing equity is an important part of what the public sector does (for instance, by trying to ensure that all children in the commonwealth have access to a quality public education), doing so comes at a potential cost of reducing the efficiency of the fiscal system, by reducing the link faced by taxpayers between the (tax) costs and benefits in public service provision.
When redistributive policies are pursued without adequately taking into account cost-of-living variations (as is the case in the examples of SNAP or SOQ funding examples noted above), there is a risk of introducing inequity and economic inefficiency at the same time, by over-taxing and under-serving residents and businesses in high-cost jurisdictions.
Doing economic development differently. In addition, recognizing cost-of-locality differences also has important implications for economic development. Experts who assess a state’s business climate recognize that the cost of living helps drive the cost of doing business. And the benefits of attracting high-paying jobs to a state, county, or city are offset–in part or in full–if the resulting economic growth causes an increase in the cost-of-living for other residents.
As government officials at all levels pursue economic development, it is therefore important not just to focus on increasing economic productivity and households incomes in nominal terms, but at the same time, to pursue economic growth and economic wellbeing in real terms, which can equally be achieved by lowering the costs faced by households and businesses.
One way that costs can be lowered in high-cost areas of Virginia is to improve the connectivity and transportation access between high- and low-cost areas of the commonwealth.
Overall, more attention should be paid to the role played by local variations in the cost-of-living in Virginia. Taking into account differences in cost-of-living and lowering the cost-of-living and the cost-of-doing business should be considered an important element of state and local policies, both from a social policy and fiscal equity angle, as well as from an economic development perspective.
