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.
Al Capone called extortion protection the gov call it a tax.
Easy answer. Easy solution to their problems:
Leave New York.
Nobody forced this couple to live in the most expensive area in the country and they want the rest of us to subsidize their decision with a “cost of living” factor.
Yup. In NYC, $250,000 a year is more like a lower middle-class income, lol.
Uncle Sam’s share-croppers.
And this dizzy broad should look in the mirror to discover the main thing that's broken.
And they live in NY City? I'm going to guess OBAMA VOTERS.
Supposedly this article should make us sympathetic to this high power couple wanna be’s but it makes me want to shove them off the fiscal cliff.
If the Houses extends the tax cuts up to $250K and the others expire (which will happen) I dont think this $250K couple pays anymore because its a fractional rate increaes.
Now if they get a raise or make more money, say $260K then they have to pay more on the extra $10K. Then they may think about not working as hard in some cases, not expanding their business.
What would happen if the House extended it to $500K instead of $250K as dems demand? (probably too late to try that)
Would that tax cut be a sellout?
Leave the cesspool. There are amazing places in this country where the life you discuss is achievable. And if you two have backgrounds in the financial industry, you might be surprised to find that there is work, culture, entertainment, affordable homes, and good food in most midwestern and Texas cities where you don’t have to live like animals.
I was amazed when I saw people earning $200,000 described as “the wealthy.” I have never earned anywhere near that, and I’d be really happy if I did, but I didn’t go into the type of work where that was likely. However, I never thought of these people as “wealthy” and it stuns me that suddenly not only are they the “wealthy,” but under Obama they have become the enemies of the people.
He’s not really worried about his wealthy rap, government and media buddies, and they’re not worried themselves, because they have huge amounts of money and so many deductions that their actual bite is probably lower. That’s why he wants to keep these deductions - raising taxes on the “wealthy” and defining “wealthy” as what are really simply upper middle class earners is just a way to let him and his buddies keep their stash.
Gee, I wonder if 0bama will be visiting THIS couple/sarc.
While I understand this couple’s situation, they have a bit of a priority problem. Namely, they are trying to save for a house when they have not yet paid off their debts. Their number one priority should be to pay off those student loans and any other credit debt they still carry.
When you are teetering on the edge, cutting debt gets you back to solid ground.
I agree with the headline. Taxable income hardly means rich. Net worth means it alot more.
Nevertheless, she doesn’t really know much. “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.” “Exemptions”? Why quote someone like this who doesn’t understand deductions vs. exemptions.
Also, her what’s reasonable rates are ridiculous. She’d bitch the high heaven at any stage of her life with a 39% marginal rate . . and that’s even before considering state and local taxes.
For too long libs have been able to “define” the “rich” Living in NY etc does increase the COL as we know, so what’s “rich” to someone is hardly that to another. Yes people do make personal choices where they live but 250k for someone who works 60 hours a week in a high priced area is hardly “rich”
bookmark
Shoulda gone to State U., worked in dad's business to pay for it, and after graduation, hung a shingle on a storefront near home. Living like the rich is very expensive. This couple obviously haven't even planned on how they will pay for childcare and a decent school in NYC if they want children, and they are already in their late 20s.
Reminds me of the Tom Wolfe novel Bonfire of the Vanities, where the phrase "masters of the universe" was coined, which was about a man with a high-flying career who can watched it all go down in flames after one wrong turn.
Hmmm...if I were them, I’d max out the 401k’s. They can always take a Withdrawal from them for a primary residence..or take a loan. THat’s what I did. 100K in taxes? And she’s an accountant? Strange..
I imagine there’s lots of folk in NYC that would consider $250k/yr to be rich.
If these people were to live like someone making $40k/yr, they would think they were rich too.
I’ve seen a lot of ignorant responses on this thread that just shows you how Obama has managed to stoke the famous leftist “class envy,” not to mention hatred and resentment of urban residents by rural or small-town people. Ya done good, Bambi!
This couple works in the financial services industry, which is located in New York or a few other big cities. Ignorant Freepers may not believe that the financial industry is very important to them, but how do they think the economy survives, their pensions stay invested properly, and money moves around? I guess they believe Maw and Paw hop in their car and carry bags of money from one place to another. And of course they keep the money in their mattress the rest of the time.
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