Posted on 12/06/2012 9:04:34 AM PST by SeekAndFind
If someone had told me as a kid in Louisiana that my husband and I would have a combined income of $250,000 a year in our late twenties, I would have been pie-eyed. It sounds like a crazy amount of money. But after taking into account taxes, debt and living expenses in New York City, we’re actually finding it difficult to meet our financial goals.
Why Our Taxes Are Nearly Unmanageable
Last year, we paid $100,000 in taxes, which is almost exactly 40 percent of what we make. Even though we also paid $22,000 in student loan payments (we have about $145,000 in combined loans for my husband’s law school and my grad school), we don’t qualify for deductions–if you make more than $150,000 filing jointly, you can’t deduct student loan interest.
We also don’t get a deduction for home ownership–because we can’t afford to buy one. We’ve been saving for three years, and after another three years of diligent budgeting, we hope to have about $100,000, which would be enough for a 20 percent down payment on a home in a New York suburb with decent schools–the average “starter” home in these areas is about $500,000–plus an extra $20,000 for closing costs and incidentals.
We’re in a weird place: We don’t have enough money to invest in a house or the stock market, which would get us tax exemptions. So we pay the full 40 percent of our salary in city**, state and federal taxes. People who are much wealthier can take advantage of tax loopholes, capital gains preferential tax rates and a larger mortgage deduction, so they end up paying only about 20 percent in taxes. For instance, in 2011, Barack Obama paid 20.5 percent in taxes. Mitt Romney paid 14 percent in taxes.
We find it ironic that we’d have to make more . . . in order to pay less.
If we’re being honest, it’s not only taxes that are killing us. Living in Manhattan is expensive—up to three times the cost of living in other cities—but I work for a private equities firm and my husband is in securities litigation. This city is the industry hub for both of our careers.
We’ve discussed moving, but it’s unlikely that we would both be able to get jobs elsewhere. We rent a one-bedroom apartment near our offices in a neighborhood where they go for $3,000 a month. We could move to a slightly cheaper outer borough, but we’re both called into our offices at odd hours and we also work long days. So we pay for the convenience of living near work.
How Things Could Get Harder for Us
We budget constantly. As an accountant, I’m always reviewing our spending, and trying to find ways to cut back. We take the subway. We don’t buy name-brand clothes, and we don’t buy anything unless it’s on sale. We take only one fun trip a year and the most we’ve ever spent on that is $1,600.
My husband isn’t even putting money in his 401(k), so we can save more for a house. (I contribute to mine, but we have diverted all of our emergency fund to our house savings.) It’s something we argue about, but these are the choices we have to make.
If our country goes over the fiscal cliff, our situation will become even more dire. The Bush-era tax cuts for married couples that make over $250,000 will expire, raising our taxes by 3 percent. That’s thousands more dollars we would have to pay—making it even harder for us to save money for a house.
Our lives are good. We work very hard, and enjoy what we do, but I’m tired of people saying that we’re not paying our fair share. How much more are we supposed to pay?
Why the Tax Code Needs to Change
We both come from middle-class families and were taught that if you go to school and work hard, you can live the American dream: own a house, have a family. It’s really all we want. We don’t live—or long for—an extravagant lifestyle.
Look, I know it’s relative. I realize there are families raising three kids on $50,000 that are just trying to put food on the table. My husband and I are very thankful for what we have. And we don’t begrudge paying taxes. We even understand why people think we’re rich. Compared to many people, we are.
We just can’t figure out how we’re supposed to make the American dream work for us while giving away half of our income in taxes.
The tax code needs to change, and if it were up to me, I’d like to see the following:
* Adding a cost of living factor. The tax code should have a “factor” that takes into account location-specific costs, like average home price, the price of an equivalent bag of groceries, the average price of a car and the average cost of gas in a region. Once taxes are calculated, the factor would be applied to achieve greater geographic tax parity.
* Phasing out deductions and loopholes. If we lowered tax rates across the board, and cut the deductions and loopholes in the system (there are plenty of them to pick from!), we would put everyone on a more level playing field. I know it’s a touchy subject, but capital gains rates probably also need to be increased from the current 15 percent–even if it’s just a bump to 20 percent.
* Broadening the tax base. Right now, deductions and loopholes mean that many people don’t pay certain federal taxes. If we eliminated them as described above, more people would pay taxes that they owe. By no means do I think that families in dire circumstances should be asked to dole out money to the government. But if more families could help chip in a small portion of their earnings, it would work toward generating more revenue–and a little bit, spread across a large number of people, could go a long way.
* Lowering the tax rates. I’d be fine paying in the 30 percent range. And if my husband and I did make it to a point where we were making above $500,000, reasonable tax increases (35 percent-39 percent) for this income would be acceptable.
There’s something really wrong with a system that considers us “rich” and not paying our fair share at 40 percent–but billionaires are only paying 20 percent or less.
Something is obviously broken.
We just hope it gets fixed soon.
I imagine Dave Ramsey would advise this couple to pay off their student loans, DO NOT buy a house in New York, and when they are out of debt - leave New York.
I wonder - even if they took a $100,000 yearly loss in income to live somewhere else - if that could be made good by the lower taxes and lower costs of living.
A starter home in New York costing $500,000 could be had back home in Louisiana for $100,000.
They can't: she works in private equity, he in securities litigation. The chances of them both finding work in their fields in another city is small, and even if they did, it would likely be at lower salaries in another city with living costs that are almost as high as NY.
“My husband isn’t even putting money in his 401(k), so we can save more for a house. (I contribute to mine, but we have diverted all of our emergency fund to our house savings.) It’s something we argue about, but these are the choices we have to make.”
Well, all 401k plans allow you to borrow against your balance for down payment on a house. As long as you don’t take out more than half of the balance. You will have to pay it back with interest, but you’re essentially borrowing against yourself. No brainer.
This woman works in private equity and doesn’t know this fact? I don’t buy this story.
My wife and I are in the same fix but at the other end of the age spectrum.
We worked our asses off to provide for our children and today have parent-college debt (that won’t be forgiven by Obaumgabe) and retail debt accrued while the kids were growing up.
It was out choice and we work to pay it off. We despise the leeches that don’t pay and expect the Dhimmicrats to pay their debt for them.
I’m available if John “The Bawler” Boehner and “Harriet White” want to confab on the plight of the collective “responsible Americans”, I’m available.
First, they have student loan debt. That was optional. Now it’s not.
Then, they live in an expensive place. They could live in Kansas City or Denver for far less.
And they want the best schools for their children, trying to avoid the war zone public schools. That’s optional.
Their life is a series of choices. They want to make bad decisions and not have to pay for them.
Before you seek to ellicit public sympathy, please tell us for whom you voted for in 2008, and again in 2012.
I thought of that. See post 21. But I disagree that living in another city would be almost as high.
I think even if they took a hundred thousand dollar decrease in income - they might be better ahead in say Houston or Dallas.
IOW, they are "liberals". This is one of the cores of "liberalism".
Without going into the whole cost of living thing which is an illusion anyway.
If she lived down here she’d be hard pressed to get paid $100K or better out of college and $250K plus here will buy a lot of house. New college grads are dolts. She have the same problems here based on the COL adjustment of her making about 30% less at least.
I have been out of college for 30 years and just now make 6 figures after years in the biz.
Sorry, if you want sympathy, look it up in the dictionary. Or move. And I say that to anyone who cries the blues about that kind of salary.
But don’t get me wrong — these people should not be taxed more than anyone else.
And go where, to work in securities law and private equity?
There's basically one other option - San Francisco, which is worse.
Yes I’m disturbed at the responses to this thread. A very leftist jealousy towards a young couple who worked hard through school in majors that allowed them to get good paying jobs.
These jobs in large extent do reside in NYC.
The they got it coming, if you don’t like it move or they don’t know how to budjet are pretty much the same responses you’d see if this was posted in a leftist rag.
Indeed. Sour grapes.
I’m going to guess OBAMA VOTERS.
If they are from New Orleans, yes would be the answer
If they are from Jefferson Parish, most likely not. LA is finally a red state now and we plan to get the last socialist democrat out in 2014 - Mary Landrieu!!!
“Something is obviously broken”
Hmm, puzzler, bit of a puzzle (loosely quoting Jennifer Aniston there)...Maybe, JUST maybe, you could vote for someone who will NOT raise your taxes, and see how THAT goes?
Isn’t there some biblical verse that say’s something about sowing and reaping?
Fact! (It worked so well for Piers.) /s
Her complaint had nothing to do with working in securities law and private equity. It was the excessive tax burden and COL in New York.
Upthread I suggested they pay off their student debt and move south. Yes, they may take on lower paying jobs, but in the long run - they will make much more money and pay much less in taxes.
Meh. They certainly "can" . . . it's more like "they don't want to."
My read on their situation is that they're just bitching about reality. They don't "have" to live in Manhattan; they WANT to live in Manhattan. One does not go to law school, decide to get into securities legislation, and yearn for the corn fields of Iowa. One does not get a graduate degree in accounting, go into private equity, and dream of setting up shop in Biddeford, Maine.
They want to be the NYC power couple. They're just now realizing that to be the NYC power couple, they're going to have to pay some serious, big-time dues.
This is yet another example of a couple of young people getting smacked in the face by a little thing called "reality."
Freedom means the government not knowing your income or net worth. MYOB. Damn the progressives and the 16th Amendment!
He’s a financial lawyer, she works for an equities firm. Both have NYC on the resume’. Ok, so move to a place like Austin, Overland Park, Grand Rapids, or some such location.
Some local law firm will hire him. She goes down to the best of the local banks and gets in their program to become a branch manager. Combined maybe you little more than half of what you do in NYC.
Buy a nice house, with a nice yard.
Buy a cool car or pickup.
Park it for free in your driveway or garage.
With your new found privacy, have some fun and knock out a few kids the way you’re supposed to.
Join and be active in the local church of your faith.
Learn how to really make a steak.
Buy a telescope and look at the stars from your backyard. Buy a jaccuzzi and do the same thing, naked as a jaybird. Go to the lake on a summer afternoon.
Enjoy life.
Buy any size soda you wish.
Buy a pistol and a 22 for fun.
Find the boutique coffee shop in town and go tehre a lot with yor laptop.
Pay your 22 dollars and go to the local theater production hall that is in every town that size.
Watch TV and shake your head at the people in New York on the news shows, and Saturday night live.
Fly there any weekend you please on Southwest if you have some sort of odd Manhattan fetish.
And never EVER vote domocrat. They want to create NY paradise everywhere.
Duh. Move to Jersey.
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