The Overtaxed $250K Couple: ‘We’re Not Rich’

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.

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.

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.

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?

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.

“I was amazed when I saw people earning $200,000 described as “the wealthy”.”

It is a lot of money, though I don’t know about “wealthy”. There is no reason for a couple making this much money to live in NYC and complain about it; the suburbs (connected by highways, trains, and ferries) have many people living in them at a fraction of the cost while still working in NYC.

I think about how much income my wife and I have (far less than half of what these people have), then think about all of the extra money they would have to play with if they kept it simple (which apparently they don’t). I don’t want their taxes increased, but I don’t want to hear them complain either.

The 2012 election showed how few voters are left in this country that ever think they’ll even earn $100K. Every job that people put forth as “where the money is” have companies scrambling madly to either outsource the work or import foreigners to do it; the companies have no interest in paying a “market rate” according to supply and demand within the US (see tech, nursing, financial sector). People of all ages are watching our standard of living plummet, and simply didn’t believe Romney would address it (Bush certainly didn’t). It is a shame that so many think communism will help them; it never helped anyone but the upper party members.

This is all just part of THE BIG DEMOCRAT CON GAME.

I was just watching the news and they are talking about hitting the "rich" by getting rid of the home interest deductions. They were saying that only 27% of the people itemize, and most of them are "rich," so they would be the ones hit by ending this deduction.

I make LESS than what this lady pays in taxes, and I have been itemizing for YEARS to avoid paying too much in taxes. With most of my children out of the house, I am now about to be hit with the ATM, so if they ditch this deduction in an effort to hit the "rich," they are going to be PUNCHING THE HELL out of a whole bunch of us middle-class people!

How many of these "tax the rich-liberals" do you think are really paying attention to these negotiations and won't even realize the wool is over their eyes until it is TOO LATE?!?!

You two have touched upon something that's had me scratching my head recently, in the jealousy area. Why is is there are so many who begrudge the earnings of CEOs today, while no-one makes a big deal over the earnings differential between A-list stars and average actors? Or, for that matter, the pay differential between NHL stars and the average minor-league player?

Why is it that no-one pines for the "good old days" when NHL stars pulled in ten grand a year (less than $100,000 in today's dollars?)

It's a telling inconsistency. One the one hand, CEO salaries have skyrocketed. On the other hand, an NFL or NBA star has enough swag to become next-door neighbours with the CEO of a major listed company. Back in the "good old days" of the '50s and '60s, their chances of moving into the CEO part of town were zero. Only top-level Hollywood actors could - and they didn't, preferring Hollywood.

It's an inconsistency we take for granted. The only rancour over high Hollywood salaries I've seen here is because of their left-liberalism and support for higher taxes plus the economic jealousy that fuels them. That's not really jealousy of the rich actors, it's the calling-out of performative hypocrisy.

And yet, even for some here, there's a lot of rancor over high CEO salaries. It's one of those taken-for-granted inconsistencies that's hard to spot and puzzling when it's spotted. No-one here, including me, begrudges any star athlete his/her good fortune - even though pay packets for the best have risen longer and stronger than CEO pay packs. The pro-athlete and Hollywood-star "pay revolution" got rolling in the 1970s, not the 1980s.

Is there a professor-level economic historian in the house? If so, you've got a "cool"-level paper waiting to be written. "The Pay Revolution 1970-2000: How Top Pro Athletes, Hollywood Stars And CEOs Skyrocketed Their Income And Jacked Up The Pay Differential Between Their Select Top-Level Group And The Norm."

Interesting points. It’s true: why do celebrities (sports, movies, TV, the Presidency) get to pull down huge salaries and perks without a complaint from people who work much harder and earn far less, while people who build a business or invest in their futures -and have spent years studying or preparing to do so - and earn what is by celebrity standards a fairly modest income are portrayed as evil bloodsucking leeches? And are even perceived as such by many on FR, who should know better?

The reason Obama has gotten away with all that he has is that he has been projected as a celebrity. This is a term that is hard to define, and maybe the same doctoral dissertation should look at this area...

There’s no question that people choose to live in high cost areas because of culture, nightlife, jobs lots of reasons. I live in Chicago costs a lot for a place to live but then again I don’t need or want a car. Saves a lot of money. That said all the smugness on this thread may be short lived. Your think the feds are going to stop at $250.000.00 a year..???? LOL. They’re softening it up they want a lot more from all of us. And for those who think because they live in less expensive areas all is well??? Well guess what? The IRS is a step ahead of you. They already have what’s called” maximum allowable expense’s” tagged to where you live. If you don’t think there’re already thinking about it ...Wake the heck up it’s the new normal. You’re going to be taxed more just because you chose to live in a low expense area.

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