What do you base this on?
Productivity is defined as output/employees, where output is measured in dollar terms as the firm's revenue. You can run the numbers yourself, but the tech industry in Silicon Valley and the financial industry in NYC have consistently high productivity numbers. Google has consistently run at $1M+/employee for the last 10 years, for example, and Apple makes about $2M/employee. Goldman Sachs is similar.
Strong competition between firms within an industry in those locales means that workers can capture a decent share of that productivity. It's not unusual for a senior engineer at Google to pull in $300K+/year in total comp, and Goldman Sachs was famous for having a mean salary of $630K+/year during the height of the financial crisis.
When you have a large number of people in a region with lots of disposable income to spend, it tends to push the price of basic life expenses higher. One or two rich folks is not going to move the price of housing: they buy one or two houses (or maybe 5-10, max), and nobody else can charge more. However, a hundred thousand people that can afford a $5M mortgage is definitely going to push the price higher. They all need housing, and landlords realize that they can demand higher prices and they will find a willing buyer. Hence, cost of living increases.
tl;dr: Firms in these areas hold monopoly positions that let them extract a lot of money out of customers. Employees at these firms hold competitive bargaining positions which let them (as a group) extract significant amounts of money from their employers. Widespread availability of money in the region makes prices rise.
Startups that aren't on that growth curve shouldn't be hiring remotely, or hiring at all really.
I'm not certain that a COL adjustment is necessary either. The higher COL in the Bay Area and NYC reflects the higher productivity of workers in firms in those regions. If you want to allocate foreign specialists where they will generate the most economic value, it makes sense that they go to tech hubs with high average salaries and high costs of living. It also solves the "domestic worker displacement" problem, which seems to be more of an issue in Kansas City than in San Jose.
Also, such a change would be in the interests of major tech companies like Microsoft, Google, and Apple. They already pay their H1Bs close to market rate, significantly more than Wipro/Infosys/TCS pay theirs, and so they would win a lot more of the H1B visas under this system. Someone (any insiders here?) should let their public policy teams know; they may be useful allies.